The Motley Fool Discussion Boards

Previous Page

Financial Planning / Tax Strategies

URL:  http://boards.fool.com/in-reply-to-the-following-12230445.aspx

Subject:  Re: Constructive Sale Question Date:  3/18/2000  4:54 PM
Author:  CarlErikson Number:  32064 of 120812

In reply to the following:

*************************************************
<<If I read this literally, for Scenario #2, the first hedge transaction was closed in the year 2000 (on 1/1/2000). Therefore, I actually have until 1/30/2001 to close the second short transaction!!!>>

And I agree with your interpretation. Right or wrong.

<< (I need to close the second transaction "before the end of the 30th day after the end of your tax year in which the first transaction was closed (1/1/2000)"). I'm sure my logic is flawed somewhere in here, but where?>>

I don't think so. Where you might be a little lost is that example #1 indicates a 1999 (potential)constructive sale, where example #2 indicates a 2000 (potential) constructive sale.

<<Is Scenario #2 deemed a constructive sale because the second short took place in the next year or no? If it isn't a constructive sale, then do I need to close the second transaction by 1/30/2000 or 1/30/2001?>>

You would have until 1-30-2001 if I read and understand your question correctly.
*************************************************

I guess I find this bizarre. I avoid the constructive sale in 1999 (by covering the short) and then I immediately (one day later) put on the hedge position again (in the year 2000). I can wait a whole year to cover this new short and after I do that, I can one day later hedge again! And at no point do I have a constructive sale! I can just keep on doing this year after year! It just seems like exactly what the government wants to prevent - being able to lock in a gain forever without paying any capital gains at the moment you lock in that gain.

I'm not complaining because I think constructive sales laws are contrived anyway, but I still find it odd.

Thanks again,
Carl
Copyright 1996-2014 trademark and the "Fool" logo is a trademark of The Motley Fool, Inc. Contact Us