A "constructive sale" is when IRS deems an event a sale, even if you didn't intend it to be.
For instance, if you are long a stock, and then short it against-the-box, or even buy puts in it,to hedge the position for a period of time when you are nervous about the stock --you didn't sell the long outright in order to avoid booking the capital gain you have in the long -- you probably have triggered a "constructive sale". You probably owe taxes on the long, just as if you outright sold it. Selling price is pegged to the price as of the day you put on the short position(or bought the put).
There are ways around this, but they are kind of tricky and the exact rules have not been codified yet, last I heard. (From what I know, you must close out the short position(or sell the put) no later than the last day of January in the following year, AND, then be naked in the long again for at least 60 days.)
Basically, Clinton Administration hated shorting-against-the-box and put hedging/tax avoidance, and killed these old tools last year. Odd that so few people seem to be aware of it yet. |
