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URL:  https://boards.fool.com/i-realize-the-effect-is-about-the-same-but-just-34661061.aspx

Subject:  Re: Can we call it quits on FSLY v. NET? Date:  11/7/2020  7:19 PM
Author:  Ckelly7279 Number:  73299 of 78040

I realize the effect is about the same but just wondering if there is some aspect of shorting a stock you own, that I don't see, that is beneficial over just selling some of your shares.

This response is OT for this board. Any further questions should be raised on tax strategies or other on topic boards (i.e. shorting/options strategies etc).

Answer: Taxes

My preference was to hold long term. Yet, there was a lot of uncertainty caused by the pre-release, and I wanted to protect myself from further sell-off.

If I sold, I would recognized substantial short term gains taxed at 40%+ in 2020. I sold a "covered" short instead. FSLY did drop, so I realized short term gains when I closed my short position on 10/28. However, my FSLY position has never changed and I avoided substantial short term gains. FSLY has since rebounded some.

Shorting against the box used to be common. In 1997, IRC Sec. 1259 was enacted and limits its use, and you must recognize a constructive sale on your long position unless you qualify for the exception. To qualify, you must (a) close your covered short position before Jan 30 (i.e., before 30 days after the close of your tax year), and (b) continue to hold your long position "unprotected" for at least 60 days after you close your short. If I sell before 12/28, I will have a deemed sale when I shorted.

If I hold past 12/28, I will have a long term holding period and, if I don't sell this year, will defer paying any taxes on the gain for at least a year. Of course, I pay taxes on the short term gain from the short.

Why only 80%, and why not options? Again, OT, but I'm subject to certain trading restrictions and requirements by my employer. (Please don't respond to this post here with other strategies which are OT for this board).

Mike
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