Short Sales

[TaxRunner]

A client of mine has proceeds reported on 1099-B from a short sale. How does a short sale get reported on Schedule D?

[JON]

Never ever heard of it

If he shorted against his own shares maybe the broker closed it out or misunderstood???

[Unregistered]

Short Sales

Just identify the sale on the Sch D as a short sale and report it like you would any other sale. What he did was borrowed someone elses stock and sold stock it expecting for the price to go down. When he purchases the stock he gives the stock back to the person he borrowed the stock from. If the stock goes down in value he makes money! The idea is to sell it at a high price and purchase it at a lower price (replace the borrowed shares).

[TaxRunner]

Yes, after doing a little research I realized the short sale gets reported on Schedule D once it is closed out. Holding period applies to how long the purchased securities were held before closing the short sale. However, there is one short sale that still has not been closed, I beleive this is not reported on Schedule D, but a note needs to be attached to the return to state why schedule D differs from the 1099 received.

[Unregistered]

Short Sale

Tax Runner;

You say that one of the transactions have not been completed. Make sure because I do not know of any transactions that should be included in the 1099 that do not involve a roundtrip ticket (purchase and sale). However, if it did occur attach the note like you suggested.

Profit

[jainen]

constructive sales

>>I do not know of any transactions that should be included in the 1099 that do not involve a roundtrip ticket (purchase and sale). <<

Besides the possibility that the 1099 is wrong, there are some times when gain or loss is recognized even though the short sale is still open. The most common of these constructive sales occur when an investor is holding other shares identical to those in the short sale.

[Unregistered]

Jainen

That would be a short sale against the box.

[TaxRunner]

Publication 550

Just so everyone is clear. If you go to Chapter 4 of Publication 550 you will note the IRS rule for Short Sales. The gain/loss is only recognized when the sale is closed out unless it is a Constructive Sale. It would be considered a Constructive Sale if when entered into the short sale you owned the long position. If it is a Constructive Sale, gain/loss must be recognized when the short sale occurs. However, if you do not own the long position it is not a Constructive Sale and no gain/loss is recognized until you purchase the long position and close the short sale. Hope this helps to clarify any confusion.

[JON]

Still gets reported as gross

proceeds. Brokerage house still reports on 1099B-if your client does not have the positioned covered and it is still open at the year end-enter the cost to match the gain and record the completed tranasaction the following year?????

[dmj4]

Is this correct

Jon asked this:
Brokerage house still reports on 1099B-if your client does not have the positioned covered and it is still open at the year end-enter the cost to match the gain and record the completed tranasaction the following year?????

**My client had a short sale, reported on a 1099B and has not purchasd the the sold shares. The price went up instead of down so they are holding out until the go down.

Thanks!

[joanmcq]

Yes, the stock has been SOLD, so the proceeds are reported on the B. The stock hasn't been bought yet, so the position is still open. It is correct to report the sale in the year it closes. HOWEVER, if not reported in the year of the sale, then you will get a CP2000 because the sale wasn't reported. So just put the basis = to proceeds to get the gross sales to match up the 1099-B. Not sure what to put down for the buy price though.