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When Short Selling Stocks

The IRS wash sale rule is a bit different when it comes to short selling stocks (sell stock short).

IRS publication 550 page 56 states:

Short sales. The wash sales rules apply to a loss realized on a short sale if you sell, or enter into another short sale of, substantially identical stock or securities within a period beginning 30 days before the date the short sale is complete and ending 30 days after that date.

Therefore, if you cover, or buy back, your short sale shares at a loss and then sell short the same stock again within the 30 day period, you have a wash sale, and the loss becomes part of your future cost basis when you finally cover the short. This is a bit different in the sense that a sale has triggered the wash sale rather than a purchase.

Because TradeLog accurately matches short sale positions as well as long positions, we are able to properly handle this particular part of the wash sale rule.

Learn More... Wash Sales Between Stocks and Options

^{Please note: This information is provided only as a general guide and is not to be taken as official IRS instructions. Armen Computing Ltd. does not make investment recommendations nor provide financial, tax or legal advice. You are solely responsible for your investment and tax reporting decisions. Please consult your tax advisor or accountant to discuss your specific situation.}