If you think it is complicated on options, check this out for profits resulting from a short sale of stock, where the short position is held for more than one year:
[From FAQs on the IRS website:]
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Since the date acquired is after the date sold, how should I report a short sale on Schedule D?
This can be confusing with a short sale since it is really a two-step process. The date sold is the date that the transaction closes, which is the date you deliver to the lender the stock or (other assets) that cover the short sale. The date acquired is the date you purchased the stock (or other assets) delivered to the lender.
Normally, the short sale of a capital asset is considered to result in short-term gain or loss since the stocks (or other assets) that are delivered to "cover" the short sale are purchased the same time as the delivery. However, if stock held by the taxpayer for greater than one year is used cover the short sale, then the gain or loss is long-term. [Bold italics added]
References:
* Publication 550, Investment Income and Expenses
* Tax Topic 409, Capital gains and losses
I held stock substantially identical to the stock I sold short, but I covered the short sale with shares that I purchased later. How does that affect the way I report the short sale?
If you held substantially identical stock at the time of the short sale, but you subsequently acquired new stock to close the transaction, gain or loss would still be recognized when you close the short sale. However, the loss would be long-term if you held the substantially identical property more than one year at the time of the short sale, regardless of what stock was delivered to close the transaction.
For more information on constructive sales, refer to Constructive Sale treatment for Certain Appreciated Positions in Chapter 4 of Publication 550, Investment Income and Expenses.
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IMO if the Congress would throw out the entire tax code and implement nothing but a flat tax on earned income, with all income under some minimum exempt, there would be a huge increase in productivity in this country resulting from all of the CPAs, tax attorneys, and accountants having to do something productive and worthwhile.
All capital gains and losses would of course be irrelevant, since no gains would be taxable and no losses would be deductible. |
