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

To: Spots who wrote (2172)	4/23/1999 6:26:00 PM
From: Colin Cody	Read Replies (1) \| Respond to of 5810

Spot, I think you are correct here... I was sure I read somewhere, like Money magazine or Kiplingers that short-against-the-box allowed you to go "long-term", but I guess it must have been something else. So it seems that if you held a stock for 10 years and on Dec 20th went short against the box, and then unwound it all on January 2nd, you'd have deferred the gain for a year, but it would now be short-term???!!! There are three basic short sale rules. They are referred to as the §1233(b)(1), §1233(b)(2) and §1233(d) rules. Under the (b)(1) rule, if, on the date of a short sale, the taxpayer has held property "substantially identical" to the property sold short for 12 months or less, or if the taxpayer acquires "substantially identical" property after the short sale while it is still open, any gain from the closing of the short sale is short-term gain. Under the (b)(2) rule, the holding period of such identical property is treated as beginning on the date the short sale is closed or, if earlier, the date such identical property is disposed of. This rule applies to the identical property in order of acquisition, but only to so much of such property as does not exceed the amount sold short. For purposes of this rule, the acquisition of a put option is treated as a short sale, and the exercise or expiration of the option is treated as the closing of a short sale. A "married put" exception to the above rules exists. Where property is acquired and on the same day the taxpayer acquires a put option on the same property (effectively ensuring against loss from a downside price movement at the cost of the put premium) and (also on the same day) the taxpayer identifies the property as intended to be used in exercising the option (if it is exercised), the property's holding period is not affected under the (b)(2) rule. 112 If the option expires unexercised, the premium is added to the basis of the property held. The (d) rule was enacted to prevent the conversion of long-term loss to short-term loss. If on the date of a short sale of properties, the taxpayer has held substantially identical property for more than one year, then any loss from the closing of the short sale is long-term loss. This prevents the taxpayer from closing the short sale with property purchased for that purpose and claiming a short- term loss in circumstances where the short sale is effectively protected against erosion in the value of the securities held long-term. Note that this rule applies to losses only and, further, that for purposes of this rule, a put option is not treated as a short sale. As mentioned above, these rules apply to stocks and securities (including those dealt with on a "when issued" basis) and to commodity futures (other than those to which the modified or regulatory short sale rules apply) that are capital assets in the taxpayer's hands.