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Category: Questions about Income

What is a Short Sale?

A short sale is a contract to sell property you borrowed for delivery to a buyer. At a later date, you either buy substantially identical property and deliver it to the lender or deliver property that you held but did not want to transfer at the time of the sale. Usually, your holding period is the amount of time you actually held the property eventually delivered to the lender to close the short sale. However, your gain when closing a short sale is short term if you:

* (a) held substantially identical property for 1 year or less on the date of the short sale, OR 

* (b) acquired property substantially identical to the property sold short after the short sale but on or before the date you close the short sale.

* If you held substantially identical property for more than 1 year on the date of a short sale, any loss realized on the short sale is a long-term capital loss, even if the property used to close the short sale was held 1 year or less.


If you received a Form 1099-B for a short sale you entered into in 2016 but that did not close in 2016, report it on line 1 or line 8 of Schedule D, Capital Gains and Losses. Enter the sales price in column (e). If the short sale did not close in 2015, enter “Open Short Sale" in column (f) and -0- in column (f). When the short sale is closed in a later year, report any gain or loss on your return for that year.