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jgordosea
jgordosea, Enrolled Agent
Category: Tax
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Experience:  I've prepared all types of taxes since 1987.
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What are the rules for calculating long-term versus short term

Resolved Question:

What are the rules for calculating long-term versus short term for sales when you sell a long-term position and then immediately buy it back? Apparently one cannot take a loss and then buy the same security back within 30 days (wash sale). Is there a similar rule that covers sale of stocks with a gain. That is, if I sell a stock and buy it back the same day, do I have to take a gain and does the counter for short versus long start again?
Submitted: 8 months ago.
Category: Tax
Expert:  jgordosea replied 8 months ago.

Greetings,

 

If you hold a stock and sell it the holding period is based on when that lot was bought.

You do have to include the gain in income. The wash sale rule only applies to a loss so it does not matter if you buy the stock later in the same day.

 

If you hold a stock and buy more of that stock one day and then sell some shares later on that same day then you either use the default rule of selling the first shares you bought; or you can specify with the broker prior to the sale that you want to sell the stock you just bought on the same day. That would be a short term sale and the holding period on the stock you held prior to that day would continue.

 

Selling and then buying again is a sale to be reported for tax purposes and the holding period does start fresh for the newly purchased shares.

 

Please ask if you need more discussion or clarification.

Thank you.

 

Customer: replied 8 months ago.

Is it possible to avoid the long-term gain by selling short a stock if you have a long term position in that stock? That is, if I have shares of ABC in one account and sell ABC short in another and then cover in a few days, do I have to take gain on the long term position?

Expert:  jgordosea replied 8 months ago.
Hello again,

Good thought, but no there is not a way to have the economic gain and not report this as gain subject to income tax for stock sales.

There is no exchange or other deferral method for stock sales and that is quite intentional in the tax code. When you sell and realize gain you have to report. That is essentially the definition of gross income - increase in wealth that is clearly realized over which you have control.

When you have a realized gain it does have to be reported and recognized for tax purposes. Obviously you can hold your position without selling and have the gain not yet realized and so not reported.

Hope this clarifies for you.
Please do ask if you need more help.
Thank you.

jgordosea, Enrolled Agent
Category: Tax
Satisfied Customers: 3000
Experience: I've prepared all types of taxes since 1987.
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