Tax treatment of call option that expires in the money

The premium of the option will become part of the cost basis for the stock, meaning the cost basis of your stock is the strike price of the option plus the premium paid. There is no tax consequence until you sell the stock that you received. The price you sell the stock for minus the cost basis will determine if you had a gain or a loss.

The category of the gain/loss (long- or short-term) is determined by the time period that you hold the stock. Even if you held an option for more than a year, you have to hold the stock for at least a year do get long-term capital loss/gain treatment.

From IRS Pub 550:

If you exercise a call, add its cost to the basis of the stock you bought. If you exercise a put, reduce your amount realized on the sale of the underlying stock by the cost of the put when figuring your gain or loss. Any gain or loss on the sale of the underlying stock is long term or short term depending on your holding period for the underlying stock.

Wash sale rules do not apply here, since you didn't realize any loss that would trigger a wash sale.