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Short Sale Open at end of year

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    Short Sale Open at end of year

    A client ended 2011 with short sales still open or uncovered. There is therefore no tax consequence this year but how do you report them when there is a 1099B so the IRS is expecting them on the return? According to what the client got from the broker the total amount was reported but not the individual sales. I'm tempted to do one 1099B and list basis as equal to proceeds but I am not sure that's right. Any ideas? I am also posting this on my software site.

    #2
    From 2010 Schedule D instructions

    "If you received a Form 1099-B for a short sale you entered into in 2010 but that did not close in 2010, report it on line 1 or line 8. Enter the sales price in column (d). If the short sale did not close in 2010, enter 'Open Short Sale' in column (e) and -0- in column (f). When the short sale is closed in a later year, report any gain or loss on your return for that year."

    You will obviously have to adapt this information for use with the 8949. For some reason, the equivalent information doesn't seem to be given in the 2011 instructions. What the 2011 instructions do say, however, is:

    "If a short sale closed in 2011 but you did not get a 2011 Form 1099-B (or substitute statement) for it because you entered into before 2011, report it on a Form 8949 with box C checked. In column (a), enter (for example) '100 sh. XYZ Co.–2010 short sale closed.'"

    This will be relevant when you subsequently close the sale.
    Evan Appelman, EA

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      #3
      Originally posted by appelman View Post
      For some reason, the equivalent information doesn't seem to be given in the 2011 instructions.
      The reason the 2011 Schedule D/8949 instructions don't say how to report a short sale that was opened without being closed is that the 2011 1099-B instructions say that short sales should no longer generate a 1099-B until the year the sale is closed.

      I'd read the 1099-B more carefully. They're supposed to report individual transactions (other than regulated futures or foreign currency), so it doesn't make sense to say that only the total proceeds were reported. Also check if there might be a constructive sale - though they're not supposed to report those, either.

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        #4
        Nice catch Gary

        Yes the transactions were reported even though it seems they should not have been.

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          #5
          Should be schmud be!

          If you got the 1099-B, you're going to have to show something on the return.
          Evan Appelman, EA

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