Mark Bole <12arjf9mrpo68e6[at]corp.supernews.com> wrote:
- quote -

Yes.

- quote -

That's right.

- quote -

So where's the benefit?

- quote -

What's the incentive to continue owning the original stock?

You don't make any more money if it goes up.

You don't get the dividends if it pays any. (Actually, there's
a potential but unlikely arb there: if you get the dividends on
your stock, and pay the same amount on the borrowed and shorted
stock, the tax rates might differ; but if yours is the stock
borrowed by the broker and sold, the payments you get in lieu
of dividends are at the usual tax rate, not the special
dividend rate; and you might have to pay a tax premium on them.)

If yours is the stock borrowed and sold, you don't have the
voting rights, either.

Seth

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Seth Breidbart wrote: wrote:
- quote -

"Selling against the box" has been around for a long time,
if I understand correctly, and is designed to lock in your
long-term capital gains at a point in time, but does not
take any taxation effects into account.

- quote -

Is this due solely to the current "gap" between max long
term cap gains rates and the mid-to-upper brackets of
ordinary income tax rates? If the gap was small or
non-existent, then my understanding is that impact on taxes
would be mostly neutral.

- quote -

Which puts you back to where you were, "pay (very low) long
term capital gains taxes on $100,000" as you stated above.
Which fulfills the strategy of "locking in" the gains.

- quote -

Well again, I thought the idea was to lock in a gain without
having to sell the original asset, not necessarily for tax
purposes. But maybe I'm missing something.

-Mark Bole

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joetaxpayer <12ap63dl6jo3k3e[at]corp.supernews.com> wrote:
- quote -

Even if it worked (there are similar strategies that might
still, like a total return swap contract) it wouldn't
necessarily do what you want.

Suppose you bought stock for $10,000, and it's now worth
$110,000. You could sell and pay (very low) long term capital
gains taxes on $100,000.

Suppose you entered into a short contract. Now, if the stock
drops to $60,000, you'd have a $50,000 long term capital gain
(low tax rate) and a $50,000 short term capital gain (on the
short contract) (with a very high tax rate). You've just
raised your tax bill significantly.

If the stock continued to go up, say to $160,000, you'd have
a $150,000 long term gain, and a $50,000 short term loss. If
you have some other $50,000 short term gain, that loss would
net against it. But if you don't, it nets against the long
term gain.

So it looks, overall, like a no-win bet.

Seth

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<malibu.ron[at]verizon.net> wrote:

- quote -

This is a free country and if you wish to go short against
the box, no law stops you.

But this will be deemed to be a constructiove sale (See
"constructive sale" in IRS Publication 550) and you will get
no tax benefit.

__
Art Kamlet ArtKamlet [at] AOL.com Columbus OH K2PZH

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malibu.ron[at]verizon.net wrote:

- quote -

I recall that there were regulation put in place that
rendered this strategy void.

From http://www.irs.gov/irm/part4/ch34s03.html

"The Taxpayer Relief Act of 1997 applies to short sales
entered into after June 8,1997. It provides that gain (but
not loss) will be recognized on short sales when the
taxpayer acquires the related long position If the taxpayer
is already holding the stock sold short, gain will be
recognized at the time the short sale is entered into."

JOE

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malibu.ron[at]verizon.net writes:

- quote -

Read on up "constructive sales". Thanks to a change in law
some years ago (1997, I believe) shorting-against-the-box
is now generally useless as a tax deferral strategy.

If you go short against an existing appreciated long
position, the short is treated as a sale on the day
of the short.

--
Rich Carreiro rlcarr[at]animato.arlington.ma.us

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I have a substantial long term capital gains on a stock and
would like to go "short against the box" for an equal number of
shares. My broker agreed to use my own shares as collateral.
The goal is to lock in my profit today and liquidate over 3 or
more years. Will the "short against the box" create an
immediate taxable event for all my shares or as I liquidate.

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