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How is a short sale reported for tax purposes. For instance, if a stock was shorted in 2001 and not covered until 2002, how do you handle that?
also, if shorted and covered in the same year?

Let's start with your second question first. If you short and cover in the same year, you just enter the data as if it were a normal sale. The only difference is that the sale date is earlier than the purchase date. Personally, I also modify the description to indicate a short sale: "100 XYZ Corp. - short", but that's not necessary. Short sales, in the absence of any hedging position are almost always short-term capital transactions (Line 1).

If you short a stock and the short position is still open on 12/31, enter the sale information as before. Enter "Open" for the purchase date. Enter the sale proceeds as the cost basis. This will give you $0 gain/loss (which is correct since you haven't closed the position) yet allow the IRS computers to match the sales data reported by your broker to that reported by you.

In the year that you close the short position, you will report the full transaction.

The key concept with regard to Schedule D is that you don't want to report less sales proceeds than your broker. If you do, you will get a letter from the IRS asking you to explain the discrepancy. The IRS doesn't care if you report more.

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