I sold an option, and it was exercised, leading me to be short a stock going into ex-dividend. The brokerage charged me for the value of the dividend that was paid by the company, which happened to be more than the money I had in my account, leading me to owe money to the brokerage. What tax category does this dividend charge go into? Is there any way to be able to use this charge from the dividend to cancel out capital gains (or other income) in the future? '

1 Answer 1


These payments may be deductible as "interest expense". See the IRS Publication 550:

Payments in lieu of dividends.

If you borrow stock to make a short sale, you may have to remit to the lender payments in lieu of the dividends distributed while you maintain your short position. You can deduct these payments only if you hold the short sale open at least 46 days (more than 1 year in the case of an extraordinary dividend, as defined later) and you itemize your deductions.

You deduct these payments as investment interest on Schedule A (Form 1040). See Interest Expenses in chapter 3 for more information.

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