Company bankrupt before short is covered

VictorS · Mar 19, 2007

Quote from VictorS:

just because a company declares bankruptcy doesn't mean the stock's value is $0. i personally have never seen that.
what happens is the company:
1) is delisted 2)declares bankruptcy 3)is issued a new stock symbol 4)trades at a stock price less $1

so you will have time to close short

new century still trades. it's delisted symbol is NEWC. the shares have not been dissolved yet.

MyOwnBoss · Mar 20, 2007

Ask your broker for a "worthless" letter. That will basically be the confirmation of your buy to cover at $0.00. Some brokers have an internal worthless securities account where, as a service, they will transact the buy to cover for you at a net trade amount of $0.0001 or thereabouts.

Good luck,

MOB

yip1997 · Mar 20, 2007

Quote from Wayne Gibbous:

I wonder if you even have to report it on your taxes?

I guess you must, but heck - the basis is never complete. Shares were never bought?

But then, if you are long a stock that goes BK, you can have it *declared* sold and then report it for cap losses.

Anybody have this happen to them?

You always report your short even before you buy it back. According to the tax rule, Suppose you shorted a stock at $10 last year and didn't cover it in the same year, you report a gain of $10. At the year that you cover it, you report it as a loss.

Dogfish · Mar 20, 2007

Think quite a few traders had this happen with refco, remember seeing similar questions, do some searching and you'll probably find it

Wayne Gibbous · Mar 20, 2007

Quote from yip1997:

You always report your short even before you buy it back. According to the tax rule, Suppose you shorted a stock at $10 last year and didn't cover it in the same year, you report a gain of $10. At the year that you cover it, you report it as a loss.

Yeah, I thought about that later.

1099 from broker reports sales. It's up to the trader to report what the basis is (non-MTM trader status), even though you "sold" it before you "bought" it.

Tax software used to hate that. They never heard of short selling...

yip1997 · Mar 20, 2007

Quote from Wayne Gibbous:

Yeah, I thought about that later.

1099 from broker reports sales. It's up to the trader to report what the basis is (non-MTM trader status), even though you "sold" it before you "bought" it.

Tax software used to hate that. They never heard of short selling...

It is not up to a non-MTM trader to decide the basis. The law requires you to use a "zero" basis for your short if you haven't covered it. Your broker doesn't report your purchasing price. It doesn't mean you can choose the basis.

Wayne Gibbous · Mar 20, 2007

Quote from yip1997:

It is not up to a non-MTM trader to decide the basis. The law requires you to use a "zero" basis for your short if you haven't covered it. Your broker doesn't report your purchasing price. It doesn't mean you can choose the basis.

Hmmm. Thnks.

That kinda sux. Looks like tax hassles with long-term shorts are even worse than long trades...

Surdo · Mar 20, 2007

Quote from Wayne Gibbous:

Yeah, I thought about that later.

1099 from broker reports sales. It's up to the trader to report what the basis is (non-MTM trader status), even though you "sold" it before you "bought" it.

Tax software used to hate that. They never heard of short selling...

Wow, somebody on ET with a clue!
It's about time.

el surdo