If I write puts that end up assigned, meaning I purchase the underlying security, are any taxes generated by the option in the year when it gets assigned? Are taxes only generated when the underlying security is sold?
From what I can tell, the IRS handles option assignment by adjusting the cost basis, so if the contract premium was $200 but purchasing shares from assignment cost $2000, the adjusted basis would be $1800. This implies that a tax obligation isn't generated until the shares are sold (using the adjusted basis of $1800). Is that correct?
This just seems strange since the premium would generate short-term capital gains if the option simply expired without being exercised.