Short against the box - Tax Question

R

ryanturri

Hello, wondering if anyone can help with this question. The way the tax law is written is a little confusing so I haven't been able to figure out the answer on my own.

Here is the situation: If I hold 50 shares of stock (short term <12 months) and go short 100 shares of the same stock in the same account, that puts me "short against the box." I am trying to find the tax implications of what happens if I stay short for a few weeks and then close out the short while keeping my long position. Does my holding period for the long shares become the date I close the short position? There seems to be a loophole condition where by if I close the short within 30 days of the end of the year and then do not make any other hedging strategies on the 50 shares of long stock for 60 days, there will be no tax consequences on the 50 long shares.

Any help is appreciated.
 
That is what I thought, originally except that, if you read the law there is that loophole tagged on the end that I don't quite understand.

I asked a local tax advisor and he seems to think that if I don't give up the title to the long shares then I won't have a reportable transaction in relation to that sale, but since it was just his free advice he said he couldn't say that with 100% certainty.
 
Quote from ryanturri:
There seems to be a loophole condition where by if I close the short within 30 days of the end of the year and then do not make any other hedging strategies on the 50 shares of long stock for 60 days, there will be no tax consequences on the 50 long shares.
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Right, it won't be deemed a constructive sale, meaning you won't be taxed as if you realized a gain on your long shares at the time of your short. However, the holding period for your long position still changes to begin on the date you covered your short.

If you DON'T meet the constructive sale exception, the holding period for your long shares begins on the date of that constructive sale, which would be the date you OPENED your short position.
 
Quote from ryanturri:

Hello, wondering if anyone can help with this question. The way the tax law is written is a little confusing so I haven't been able to figure out the answer on my own.

Here is the situation: If I hold 50 shares of stock (short term <12 months) and go short 100 shares of the same stock in the same account, that puts me "short against the box." I am trying to find the tax implications of what happens if I stay short for a few weeks and then close out the short while keeping my long position. Does my holding period for the long shares become the date I close the short position? There seems to be a loophole condition where by if I close the short within 30 days of the end of the year and then do not make any other hedging strategies on the 50 shares of long stock for 60 days, there will be no tax consequences on the 50 long shares.

Any help is appreciated.
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(Not tax or legal advice, my personal opinion, not that of Bright Trading or any of its' affiliates).

What you done is basically closed out the long position with a short sale and then gone short with 50 shares. "Golbal" trades apply to same person.


FWIW,

Don
 
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