It looks like when you take a gain on the short might not matter...
I got this from a websitd don't know if it is correct, per invest-faq:
Note that a short-sale is considered short-term regardless of how long the position is held open. This actually makes a kind of sense, since the only time you actually held the stock was between when you bought the stock to cover the position and when you actually delivered that stock to actually close the position out. This length of time is somewhere from minutes to a few days
Last night I commented that there is a lot of misinformation on the Board. I didn't realize I was part of the problem! You are correct. I was misreading the publication.
Here is the example from Treasury regulation 1-1233-1. ( The six month rule is one year today.)
Example (4). A sells short 100 shares of X stock at $16 per share on February 1, 1955. He buys 250 shares of X stock on March 1, 1955, at $10 per share and holds the latter stock until September 2, 1955 (more than 6 months), at which time, 100 shares of the 250 shares of X stock are delivered to close the short sale made on February 1, 1955. Since substantially identical property was acquired by A after the short sale and before it was closed, the $600 gain realized on the closing of the short sale is, by application of rule (1) in subparagraph (2) of this paragraph, a short-term capital gain. The holding period of the remaining 150 shares of X stock is not affected by section 1233 since this amount of the substantially identical property exceeds the quantity of the property sold short.
Sorry about that and good luck!
should you wait until the new year before covering?
i think not.
as an investor, paper work is minimize if you cover your settle your 'short' transaction before 12-31-$$
lets hope MM bring this back up a dollar then bring it down fast below $5
then it will be DOUGH time again.
Sorry but I think you're reading it wrong.
It says OR!!!!!!!!
...and to me the essence is that unless you held the substantially identical property for at least a year BEFORE the short sale then all gains from the short sale are short-term.
The first paragraph just says "as a general rule".
Read the first paragraph of the section you cited. "short-term or long-term gain or loss on a short sale is determined by the amount of time you actually hold the propoerty eventually delivered to the lender to close the short sale." Notice it says length of time. The sentence you quoted deals with holding the property "1 year or less". See the difference?
I agree it is a poorly written sentence, but the 1 year or less holdof identical property applies to whether you acquire the identical property before or after the short sale.
I just did this one on last years taxes.
I shorted a stock in dec of 2003 and covered in 2004.
on my 2003 I listed the stock as a short sale in columns b & c of schedule D and left instructions to 'see attached note' in column e. on the attached note I listed the short and noted it as 'uncovered as of 12/31/03'
on my 2004 taxes I again listed it as a short sale in b & c again with the 'see attached note' in column e.
on the attached note I listed the stock, the short sale price, the cover price and my profit. I then entered my profit in column f and added it to the rest of my short term gains for the year
The determination of long vs. short-term is based on how long you own the shares before you cover the short sale. It has nothing to do with how long you were short the stock. If you shorted KKD at 45 back in August 2003 and buysome shares next week (hopefully at 3). You instruct your broker to hold (box)those shares and don't cover for a year (assuming KKD's current shares stay outstanding for that long). When you close the short next year you will have long-term capital gain of $42.
As I said in the earlier post, the rule is explained in Publication 550 page 55.
Well if I was an IRS lawyer I would make a case for a constructive "cover".
This paragraph in reverse (but I guess that don't always cover every situation)
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.