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Strategies & Market Trends : Income Taxes and Record Keeping ( tax ) -- Ignore unavailable to you. Want to Upgrade?

To: Box-By-The-Riviera™ who wrote (1790)	2/1/1999 12:11:00 AM
From: Richard Joslin	Read Replies (2) \| Respond to of 5810

Short dividends are either capitalized or deducted. If the short sale is held open for less than 46 days, the short dividend is added to the cost of the long purchased to close the short. If the short sale is held open more than 45 days, the short dividend is treated as interest expense. If the broker pays the short seller interest on the short proceeds (aka rebate interest), short dividends are deductible to the extent of rebate interest income with the excess subject to the 45 day test. If the short seller hedges their short position, i.e. long call, the 46 day period is suspended until the hedge is taken off. Since the short dividends do not reduce short proceeds but rather the cost of the long used to close, you will not have a discrepancy with the 1099-B nor a need to attach an explanation.