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[[I put on a short position in 1996 and covered it in 1997. It was listed as a sale on my 1099 for
1996. How are these trades handled for taxes?
thanks, chris]]

Since the transaction was closed in 1997, it is required to be reported on your 1997 return. And any gain/loss is reported in 1997.

I assume that when you reported the "sale" in 1996, you simply reported the "sale" on Schedule D as an "open" short position. No gain or loss should have been reported in 1996 since you didn't have a "closed" transaction then. If you actually reported the sale in 1996, and paid tax on any of the proceeds, you need to go back and amend your 1996 tax return.

For additional information on short sales, see IRS Publication 550.

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