>>I'm not a tax professional, but the wash sale rule doesn't affect the tax consequences of the first transaction.<<
William, first, congratulations on your YHOO winnings. I jumped in and out short in mid March, got burned. Waiting for the backside of the mountain to get back in, thought that was it.
Meanwhile, back in the tax arena. The IRS has an approach to shorting stocks that makes ALL profits from shorting short term gains.
They do not count the first transaction as a taxable event, you simply took out a loan. But the cash value of that loan and stock sale becomes the tax basis for the true taxable event, the covering transaction. They consider that, on the day you cover, you bought the stock and sold it again that day for a price that was determined for by the first transaction. I can post the IRS regs, but I doubt anyone is interested. The thirty day wash rule may still apply if you COVER twice within thirty days. I honestly don't know if it applies to a reentered position within 30 days.
You are right, you never lose the tax benefit of a loss but it may be deferred by the wash rule. I just wanted to point out that short proceeds are always short term gains or losses and are taxable in the year of the covering transaction.
YHOO is starting to remind me of PRST in April-May 1996, very similar charts.
Zebra |
