Assume there are two like-kind capital assets: A and B.
Neither A nor B have ever been traded for dollars or any other currency prior to Day 1, and hence have no established market value.
Assume the portfolio starts with:
- Position: 0A, 0B, and $10.
Day 1, Trade 1:
- Short-sale of 1 A to get 5 B
- Net Position: -1A, 5B, $10.
Day 2, Trade 2:
- Purchase 1 A for $10
- Net Position: 0A, 5B, $0
Day 3, Trade 3:
- Sale of 5 B for $15
- Net Position: 0A, 0B, $15
What would ultimately be reported for capital gains? (in the US Form 8949)
Hint: Situations like this occur in real-life, where A and B are cryptocurrencies (like bitcoin, but different flavors of cryptocurrency)