Stocks (Options, Splits, Traders)
This is archived information that pertains only to the 2002 Tax Year. If you
are looking for information for the current tax year, go to the Tax Prep Help Area.
If a stock was sold short prior to the end of the year but was purchased in the next year to cover the short sale, when should it be included on Schedule D?
Generally, gain or loss is realized on a short sale when you deliver the stock that "covers" the short sale, not at the time you sell short. Gain (but not loss) short sale will be recognized earlier under constructive sale rules if the taxpayer subsequently acquire the same or substantially identical property to the property sold short.
Refer to Constructive Sales of Appreciated Financial Positions in either the Instructions for Form 1040, Schedule D or Chapter 4 of Publication 550 (PDF), Investment Income and Expenses for more details and exceptions.
References: Since the date acquired is after the date sold, how should I report a short sale on Schedule D?
This can be confusing with a short sale since it is really a two-step process. The date sold is the date that the transaction closes, which is the date you deliver to the lender the stock or (other assets) that cover the short sale. The date acquired is the date you purchased the stock (or other assets) delivered to the lender.
Normally, the short sale of a capital asset is considered to result in short-term gain or loss since the stocks (or other assets) that are delivered to "cover" the short sale are purchased the same time as the delivery. However, if stock held by the taxpayer for greater than one year is used top cover the short sale, then the gain or loss is long-term.
References: I held stock substantially identical to the stock I sold short, but I covered the short sale with shares that I purchased later. How does that affect the way I report the short sale?
If you also held substantially identical stock at the time of the short sale, but you acquired new stock to close the transaction, only gain or loss would still be recognized when you close the short sale. However, the loss would be long-term if you held the substantially identical property more than one year at the time of the short sale, regardless of what stock was delivered to close the transaction.
For more information on constructive sales, refer to Constructive Sale treatment for Certain Appreciated Positions in Chapter 4 of Publication 550 (PDF), Investment Income and Expenses.
References: Should I advise the IRS why amounts reported on Form 1099-B do not agree with my Schedule D for proceeds from short sales of stock not closed by the end of year that I did not include?
If you are able to defer the reporting of gain or loss until the year the short sale closes, the following will allow you to reconcile your Forms 1099-B to your Schedule D and still not recognize the gain or loss from the short sale: - Your total of lines 3 and 10, column (d), on your Schedule D should equal your total gross proceeds reported to you on all Forms 1099-B.
- In columns (b) and (c) write "SHORT SALE," and
- in column (f) write "See attached statement."
- In your statement, explain the details of your short sale and that it has not closed as of the end of the year. Include your name as it appears on the return and your social security number.
For more on these rules and exceptions that may apply, refer to Chapter 4 of Publication 550 (PDF), Investment Income and Expenses.
References: How do I determine my gain or loss on the proceeds reported on Form 1099-B from a short sale entered into last year if I have not yet bought the stock to deliver back to my broker?
In general, you cannot determine your gain or loss until you purchase the stock that you are going to deliver to close the short sale. You still need to report the gross proceeds on Schedule D so that the total of lines 3 and 10, column (d), reconciles with all of your Forms 1099-B.
Also, in columns b and c write "short sale." In column f, write "see attached statement." In the statement, explain the details of the short sale and that it is not closed. Include your name as it appears on your return and your social security number.
For more information on rules and exceptions that may apply, refer to Chapter 4 of Publication 550 (PDF), Investment Income and Expenses.
References:
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