If I buy a stock in one account and short same stock in another account...

S

SoyUnGanador

Same quantity, say 100 shares. I want to buy and sell stocks but don't want to pay taxes on my gains. So rather than buying and then selling the 100 shares, in one account I might buy 100 shares, then when I would otherwise sell it, sell short 100 shares in a different account. Then when it came time to buy again I would buy to cover those shares sold short. If all went well I would never recognize any gain on the 100 shares in my first account that I continue to hold forever.

Does that work or do the tax rules trip you up?
 
You could do it loosely with correlated products.

Say you have mutual funds in an IRA which is highly correlated with the SP500. You would allocate 100% equities which would be unprudent by itself. Then, you would continually short SPY or ES to offset some risk of a 100% allocation.

In a rising market, your IRA grows tax free, while your shorts in a taxable account would create tax losses for upto $3000 a year.

Not worth the trouble for Individual Returns, but there *may* be structures to harvest more of these losses. Too much of a free lunch to be possible, imho.

I do, however, wonder how some politician was alleged to have tens of millions in a Roth just 3-4 years after inception. The progressive nature of taxes would have made it prohibitive to do Roth conversions of more than a few hundred thousands a year.

Talk to an accountant.
 
SoyUnPerdedor said:
Same quantity, say 100 shares. I want to buy and sell stocks but don't want to pay taxes on my gains. So rather than buying and then selling the 100 shares, in one account I might buy 100 shares, then when I would otherwise sell it, sell short 100 shares in a different account. Then when it came time to buy again I would buy to cover those shares sold short. If all went well I would never recognize any gain on the 100 shares in my first account that I continue to hold forever.

Does that work or do the tax rules trip you up?
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That's called "Shorting against the box." It comes from a time when you'd actually hold a physical stock cert in a safety deposit box, and sell short on the open market against your cert in the box to evade tax.

This was a factor in the 1987 crash, and so there's now stringent regulations that apply.

https://www.investopedia.com/terms/s/sellagainstthebox.asp
 
If you’re talking about locking in gains, wash sales do not apply (those apply to losses). There’s a similar rule about “constructive sales” that apply to hedging to defer gains or try to reach long term status.

https://www.law.cornell.edu/uscode/text/26/1259

basically you’re supposed to count the short as a sale anyway, and then make the corresponding adjustments when you unwind it compared to that first taxable event.
 
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