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Author: WilliamLipp Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 123527  
Subject: Re: capital gains when you short Date: 7/14/1999 12:29 AM
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fling Date: 7/13/99 9:09 PM Number: 17281
Well, I am aware of AMT's existence, but I haven't run any numbers. All I know is that I'm probably over the limit. Does that make this whole thing moot? Should I sell some options to get the gains categorized as income instead of triggering AMT?

As others have said, find someone that knows the real answer. I've not been in this situation, but listening with half an ear to friends, I think it works like this: You're going to be keeping two sets of tax books - the amount you would have owed, and the amount you owe because of AMT. As long as the AMT amount is higher, you will pay the AMT amount. But if, at some future date, the AMT amount gets lower than the regular tax, you start to recover the AMT. In effect, you pay the lower AMT tax in that future year until such time as the total taxes paid at AMT rates for all years becomes less that total taxes you would have paid at regular rates for those years. So assuming you will eventually be out of AMT range, perhaps by retiring young, you will eventually pay regular tax amounts, and should still be paying attention to long term holds of the stocks. The practical problem most people face is that this strategy doesn't generate cash in year one, while the AMT taxes generate expenses in year one. This may not be correct in all details - in fact in might be totally wrong - so use it as a basis for your own investigation, not as a guide.

so I was considering whether I could use a short sale as a hedge. My thinking was that if it corrects, everything's hunky dory.

Again, I'm not positive about this. But I think is the strategy known as shorting against the box, and I think the long term holding rules say, in effect, that this time period doesn't count towards long term capital gains, so it doesn't work as a way to lock in gains while waiting for them to age - the gains are locked in, but they don't age.
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