Solved: If I short and then cover a stock, of which a long position is also held, how do I make sure the IRS doesn't consider that I had sold and repurchased the long position?

1 Best answer

Level 13

May 31, 2019 5:58:55 PM

How the broker reports the sale depends largely on whether the broker knows about your original long position or not. But going "short against the box" - that's the term for what you did here - involves you in a very difficult income tax reporting issue, if you want to report it correctly irrespective of how the broker reports it.

Going short against the box is considered a constructive sale and how you report the transaction depends on whether you shorted at a price higher or lower than your basis in your original holdings, how long you held the short position and how long you hold the stock after closing out the short position.

Here's a few different sites that try and explain all this in standard English:

https://www.thestreet.com/story/769361/1/hedging-technique-opens-a-pandoras-box-of-tax-concerns.html

http://www.forbes.com/sites/greatspeculations/2016/09/21/irs-short-selling-rules-can-be-a-taxing-mat...

http://www.fool.com/school/taxes/1999/taxes990716.htm

Tom Young

Level 15

May 31, 2019 5:58:53 PM

Because that is not how the broker will report the sale... ask your broker for the details if you have more questions.

Level 13

May 31, 2019 5:58:55 PM

Here's a few different sites that try and explain all this in standard English:

Tom Young

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If I short and then cover a stock, of which a long position is also held, how do I make sure the IRS doesn't consider that I had sold and repurchased the long position?