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Author: Bob78164 Big red star, 1000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121592  
Subject: Re: short against the box Date: 7/8/1999 8:32 PM
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buznitz writes:

I have 800 shares of a stock held for several years. Cost basis is zero due to splits and previous sales.

Stock is at all time high, and I would like to lock in some of the profits without tax liability for this year. If I sell short against the box do I defer the tax until covering the short after January 1st? At that time can I then keep the 800 shares and buy other shares to cover the short still maintaining LTCG for the 800 shares?


I reply:

Two problems. First, stock splits and sales cannot drive your basis to zero. Assume that your original basis was $1000 divided over 100 shares of stock, for $10 per share. After a 2 for 1 split, your basis was still $1000, but divided over 200 shares, for $5 per share. If you then sold 100 shares, you would still have a basis of $500.

Second, your plan would have worked a few years ago, but now it would fall prey to the "constructive sale" rules. Essentially, if it looks like a duck, etc., then it's a duck, no matter what you call it. --Bob
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