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When closing a stock position on Dec 30, 2020, with T+2 settlement, is the P&L booked for 2020 or 2021? TIA.

7

2020 - Settlement is an administrative operation and may depend on market (i.e. you give a US example, it is different in other countries). You SELL them on T - the fact that the paperwork transfer takes +2 should not matter.

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It's no surprise but there are contradictory articles about this on the net for U.S. taxation. Some suggest that the trade must settle this year in order to be claimed this year.

I consider Fairmark.com to be a reliable source of tax information. Here's their take on tax selling rules:

When determining what year you sold your stock, the trade date is what matters. This is the day the transaction took place on the stock exchange.

EXCEPTION FOR LOSS FROM SHORT SALES

When you buy shares to close a short position, this purchase (like any other) has a trade date and a settlement date. The date that’s used for tax purposes depends on whether you have a gain or a loss:

If you’re closing the short position at a profit, the trade date controls the timing for tax purposes. In other words, we use the same rule here as when you’re selling shares you own. If you’re closing the short position at a loss, however, the settlement date will control.

If you have any doubt, close your trade two business days before the end of the year so that you avoid tax reporting complications.

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https://www.irs.gov/pub/irs-pdf/f8949.pdf

From the instructions for form 8949:

Column (c)—Date Sold or Disposed Of
Enter in this column the date you sold or disposed of the property. Use the trade date for stocks and bonds traded on an exchange or over-the-counter market. For a short sale, enter the date you delivered the property to the broker or lender to close the short sale.

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I fundamentally agree with TomTom on this one. From a legal point of view, the settlement date is irrelevant. What is important is when you take decisive action.

In the long run, however, the IRS does not really care too much which year you book your transaction, if its a matter of a day or two. They always look at the big picture. So, you can report the P&L either way and your position is defensible. If you closed the position in November and tried to book it in 2021, that would be a different story, but here with just a day or two in difference, it does not matter.

  • For a private transaction, such as a car or a closely held business, that might be true. For stocks on an exchange, the broker will report it on 1099-B as this year, and if your 8949 doesn't say the same, you will like Lucy "have some splainin to do". – dave_thompson_085 Dec 30 '20 at 4:24

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