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In the US, is it in principle allowed to compute a capital gain/loss by reversing the order of purchase and sale? Here is an example: Assume, on day 1 you buy 1 unit of an asset for 100 dollars. 60 days later, you sell that 1 units of that asset for 200 dollars. 60 days later yet, you buy 1 unit of that asset again for 300 dollars. It seems you would have made a short term capital gain of 100 dollars, and the basis for the asset you hold is 300. Is it legal to claim a short term loss of 100 (allocating the purchase for 300 to the sale), and assigning a basis of 100 to the asset that is still held?

EDIT: It seems "obvious" the answer is no, but can we point to any authoritative reference to confirm that? The answer is not obvious because in a short sale of an asset a purchase is matched with an earlier sale by definition.

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    I didn’t downvote you but you sold for a gain then rebought. That doesn’t need an authoritative source, that’s just reality. Why would you get to top up tour cost basis as though you had a loss? A lot of other things probably also went up, if I thought about buying one of those should I get to adjust my cost basis as though my not-buying should be considered a loss?
    – quid
    Commented May 15, 2021 at 23:24
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    The authoritative source for determining capital gains is the IRS: "How do I figure the cost basis when the shares I'm selling were purchased at various times and at different prices?" Answer: "When selling securities, you should be able to identify the specific shares you are selling." YOU CANNOT IDENTIFY WHAT YOU DO NOT OWN and at the time of your sale of shares, YOU DID NOT OWN THE SECOND LOT OF SHARES PURCHASED. That's reality, no matter how many times you say it's otherwise. Commented May 15, 2021 at 23:47
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    Generally speaking, laws work based on reality, not on fiction. There are a lot of places where US tax law does work based on fiction, but only where the law specifically says so. You can't just make up your own fiction and claim that your fiction is permitted because there's no law prohibiting it. Commented May 17, 2021 at 13:47

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FIFO stands for First In, First Out. LIFO stands for Last In, First Out.

At the time of the sale, you can designate what shares you want sold (FIFO, LIFO or other shares). The IRS requires that your broker verifies that the specific shares that are sold. Without that confirmation, your broker will default to FIFO (First In, First Out).

Assume 100 share purchases and sales:

In your example, you had no opportunity to designate which shares were to be sold because you only owned 100 shares at the time that you sold 100 shares.

If you had purchased 100 shares at $100 and then another 100 shares at $300 and then sold 100 shares at $200 then you could have designated which lot to sell.

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    You didn't "borrow it from yourself". You sold it. Then you re-bought it.
    – chepner
    Commented May 15, 2021 at 23:17
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    (1) You cannot borrow stock from yourself. (2)There is no such thing in the US as stocks as a "placeholder" (3) Your comment of "there is no broker and therefore nothing has been reported to the IRS, i.e. the case where there is a list of trades for which cap gains have to be computed" makes absolutely no sense (4) I don't understand what's so difficult for you to understand. You cannot sell what you do not own unless you are borrowing stock from a counter party and shorting it... and that's clearly not the case because of your own words: "Note that this is not a question about a short sale." Commented May 15, 2021 at 23:39
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    And short sales are explicitly defined because they create an exception to the obvious conclusion that you cannot sell something you don't own. No such exception exists for claiming a loss just because you decided to open a new position after closing an old position for a gain; what answer would you expect to receive if no such explicit statement of this fact exists? Do you just want your question open forever with no answer, or are you willing to accept the fact that it is not legal, and its illegality is adequately implied by existing regulations?
    – chepner
    Commented May 16, 2021 at 17:25
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    Unless someone actually tries to do this, goes to court, and a judge writes an opinion confirming the obvious interpretation of existing law, no such "authoratative reference" is likely to ever be created.
    – chepner
    Commented May 16, 2021 at 17:27
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    The authoritative source for determining capital gains is the IRS (see their web site): QUESTION: "How do I figure the cost basis when the shares I'm selling were purchased at various times and at different prices?" ANSWER: "When selling securities, you should be able to identify the specific shares you are selling." What does that mean? YOU CANNOT IDENTIFY WHAT YOU DO NOT OWN at the time of your sale of shares. IOW, YOU DID NOT OWN THE SECOND LOT OF SHARES PURCHASED. That's reality, no matter how many times you say it's otherwise. Commented May 16, 2021 at 22:36

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