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Say I'm long IBM with Schwab, but today, i want to trade it intraday, in fact I want to short it and cover it later. With most brokerages, you can't be "boxed" (long and short the same stock at the same time).

But what about if I open an account with another broker. I can sell short IBM without selling it because it is with another custodian.

My question is ... how does the IRS treat that sale and buy (when I cover?). I'm trying to avoid realizing a long term capital gain, but at the same time trade the stock.

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    Why not use options to take the short position?
    – quid
    Commented May 23, 2017 at 17:38
  • @quid because you are pissing away time premium if the trade is more than one day... and if it is less... then the cost is really high because of the wide bid ask spread on options
    – jason
    Commented Dec 7, 2017 at 14:08

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Here's how capital gains are totaled:

Long and Short Term. Capital gains and losses are either long-term or short-term. It depends on how long the taxpayer holds the property. If the taxpayer holds it for one year or less, the gain or loss is short-term.

Net Capital Gain. If a taxpayer’s long-term gains are more than their long-term losses, the difference between the two is a net long-term capital gain. If the net long-term capital gain is more than the net short-term capital loss, the taxpayer has a net capital gain.

So your net long-term gains (from all investments, through all brokers) are offset by any net short-term loss. Short term gains are taxed separately at a higher rate.

I'm trying to avoid realizing a long term capital gain, but at the same time trade the stock.

If you close in the next year, one of two things will happen - either the stock will go down, and you'll have short-term gains on the short, or the stock will go up, and you'll have short-term losses on the short that will offset the gains on the stock. So I don;t see how it reduces your tax liability. At best it defers it.

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  • I don't think the addresses the specific issue in question. This person wants to hold a long and short position at the same time, and would like to do this without disrupting/selling any of the existing long term long position. Are there specific rules about owning long and short positions in the same security concurrently? As an example the short term losses on the short would offset the gains in the stock only in the even the gain is realized, which is the event this person wants to avoid. Maybe a solutions is to elect LIFO taxation to buy more long shares to cover the short.
    – quid
    Commented May 23, 2017 at 18:16
  • @quid I don't know of any rules that say you can't - I was saying that I don't see why you would. Why would you borrow shares that you already own just to sell them? If you offset it perfectly, you just defer any gains (and tax) until the position is closed.
    – D Stanley
    Commented May 23, 2017 at 18:45
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    @Dstanley. let's say i own IBM $50 cost basis, and have held it for 364 days. On the 364th day, i decide to DAY TRADE IBM. And I sell it short for $100. Covering it the same day for $95. If i sell my existing position, it would be ST gain, if I'm starting a new position, the original IBM position would be a LT gain if i hold out for a few more days.... the short selling is a ST gain regardless... If I don't start a new positon, i would have 2 ST gains. If I did, i would only have one. And the first one is the bigger number. Understand?
    – jason
    Commented May 23, 2017 at 20:50
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    Yes, that makes sense. When you said " I'm trying to avoid realizing a long term capital gain" I was assuming that you have held the stock for more than a year and were trying to avoid paying any tax.
    – D Stanley
    Commented May 23, 2017 at 21:24

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