Client made a short sale 12/17/10 with the proceeds included in her 1099-B. In all her hundreds of pages of year end statements, etc., I cannot find the corresponding purchase. If the stock was purchased in 2011 to cover the December short sale, do I have to list her cost basis as zero? What do I need to know about short sales?
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For the cost basis, enter "Open Short Sale", with the gain/loss column as 0. You'll enter the transaction again on the 2011 return, and the IRS will figure out from the purchase date being after the sale date that it was a short sale that was closed in 2011. It's almost always a short-term gain/loss, since the holding period is based on the actual time the stock was owned - often just minutes between the buy and the close.
This assumes that the taxpayer didn't actually own any of that stock at the time of the short sale. In that situation, the rules change. -
Thank You
Thank you, Gary. Now I'll be able to finish this return Sunday.Comment
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