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Strategies & Market Trends : IRS, Tax related strategies--Traders
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To: Mark Davis who wrote (1135)3/5/2000 11:52:00 PM
From: Dan Duchardt  Read Replies (1) of 1383
 
Mark,

I believe you don't report it at all. From Pub 550

Short Sales

A short sale occurs when you agree to sell property you do not own (or own but do not wish to sell). You make this type of sale in two steps.

1.You sell short. You borrow property and deliver it to a buyer.
2.You close the sale. At a later date, you either buy substantially identical property and deliver it to the lender or make delivery out of property that you held at the time of the sale.

!!!You do not realize gain or loss until delivery of property to close the short sale. You will have a capital gain or loss if the property used to close the short sale is a capital asset.!!!

Exception if property becomes worthless. A different rule applies if the property sold short becomes substantially worthless. In that case, you must recognize gain as if the short sale were closed when the property became substantially worthless.

Exception for constructive sales. Entering into a short sale may cause you to be treated as having made a constructive sale of property. In that case, you will have to recognize gain on the date of the constructive sale. For details, see Constructive Sales of Appreciated Financial Positions, earlier.

Assuming the stock you are short still is trading, and assuming you have not shorted against the box, or have some other constructive sale situation, the exceptions do not apply.

I think the point is that for tax purposes you are required to report all gains (and losses to offset gains), not sales. You don't have a gain or loss until you close the position.

Dan
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