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Author: CarlErikson Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121095  
Subject: Re: Constructive Sale Question Date: 3/18/2000 4:54 PM
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In reply to the following:

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<<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.
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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
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