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stellingp
New Member

Where do I enter my investment expenses for "Dividends paid on short positions"?

These are direct expenses on stocks sold short -- the company paid a dividend while I held the short position, so the dividend amount was withdrawn from my account to pay to the holder of the "borrowed" stocks sold short. These expenses are not reflected in the 1099-DIV, so where do I enter them?
1 Best answer

Accepted Solutions
TomYoung
Level 13

Where do I enter my investment expenses for "Dividends paid on short positions"?

Pub 550 covers this:
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Payments in lieu of dividends.
 
If you borrow stock to make a short sale, you may have to remit to the lender payments in lieu of the dividends distributed while you maintain your short position. You can deduct these payments only if
you hold the short sale open at least 46 days (more than 1 year in the case of an extraordinary dividend as defined later) and you itemize your deductions.
 
You deduct these payments as investment interest on Schedule A (Form 1040). See Inter­est Expenses
in chapter 3 for more information.

If you close the short sale by the 45th day after the date of the short sale (1 year or less in
the case of an extraordinary dividend), you cannot deduct the payment in lieu of the dividend
you make to the lender. Instead, you must increase the basis of the stock used to close the

short sale by that amount
------------------------------------------------------

Tom Young

View solution in original post

6 Replies
TomYoung
Level 13

Where do I enter my investment expenses for "Dividends paid on short positions"?

Pub 550 covers this:
------------------------------------------------------

Payments in lieu of dividends.
 
If you borrow stock to make a short sale, you may have to remit to the lender payments in lieu of the dividends distributed while you maintain your short position. You can deduct these payments only if
you hold the short sale open at least 46 days (more than 1 year in the case of an extraordinary dividend as defined later) and you itemize your deductions.
 
You deduct these payments as investment interest on Schedule A (Form 1040). See Inter­est Expenses
in chapter 3 for more information.

If you close the short sale by the 45th day after the date of the short sale (1 year or less in
the case of an extraordinary dividend), you cannot deduct the payment in lieu of the dividend
you make to the lender. Instead, you must increase the basis of the stock used to close the

short sale by that amount
------------------------------------------------------

Tom Young

View solution in original post

jtsacoyeanes
New Member

Where do I enter my investment expenses for "Dividends paid on short positions"?

I cannot deduct this that way unless the total of all my deductions exceeds the standard deduction.  It doesn't make any sense to me that I must include dividends I receive as income and cannot deduct dividends I pay out directly against the dividend income I received.  It would have been advantageous to me to increase the cost basis instead.
jammuell
New Member

Where do I enter my investment expenses for "Dividends paid on short positions"?

How do you account for a Payment in lieu of dividends when the short sale was less than 45 days and the short position was taken in December as well as the Payment in lieu of dividends was made in December,  but the close of the short sale occurred in January the following year.  The statement from my broker does not contain the basis of the stock as the transaction would not appear until next years taxes.

 

Do I use the last stock price in December as cost basis and adjust for Payment in lieu of dividends? 

..or..

Do I wait until next year to adjust the basis?

 

Any Advice?

fanfare
Level 15

Where do I enter my investment expenses for "Dividends paid on short positions"?

Your short sale was closed in January.

In order to close a short you must go to the market and acquire some securities.

Thus,

The acquired date is the date you closed the short sale.

For Stocks, the disposed date is two business days later (settlement)..

Note: Date Acquired and Date Disposed refer to Columns (b) and (c) on Form 8949 that you will report to the IRS, next year.
Your trade date is the date you closed the trade and goes in (b). Settlement date must be calculated taking into account weekends and market holidays .

Zagros
Level 2

Where do I enter my investment expenses for "Dividends paid on short positions"?

 
hightecher
New Member

Where do I enter my investment expenses for "Dividends paid on short positions"?

How do you handle situation when the short was initiated and closed in December, but the dividend was paid in January?

 

I am not if sure Fidelity adjusted the basis for 2018 tax documents.

Now I see a note on the 2020 1099 about short dividend charged on 1/2/2019.

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