I have a big open short sale position from November 2006. On my 2006 tax return I reported the sale proceeds and noted it as an "open short sale". I did NOT cover the short during 2007. Do I need to report the "still open short sale from 2006" or can it just wait until the year that I actually cover the sale?
Also, I made some "payments in lieu of dividends" on that short sale. Can I offset some actual dividends received with these dividend payments made?
No.
The only reason you had to report on your 2006 return was so that the IRS wouldn't try to tax the short-sale proceeds. But since there were no short-sale proceeds from the position in 2007, there's nothing to report.
Correct.
Not directly. It's an investment expense, going on Sched A. You can't directly offset it against dividends.
-- Rich Carreiro snipped-for-privacy@rlcarr.com
I've always reported it as investment interest.line A13. This makes it deductible, free of the itemized deduction phaseout, and free of AMT.
An investment expense would I think be line A22. This includes things such as monthly and quarterly fees at your brokerage company, payments to a financial advisor to manage your money, subscriptions to investment and money magazines. Only total expenses above 2% of your AGI are deductible (though you add unreimbursed job expenses and tax preparation fees to the total expenses), and it is subject to the itemized deduction phaseout and is not allowed under AMT.
This is all described in
If you held the short position open more than 45 days then you can take an itemized investmment interest deduction.
But if the position was held open 45 days or less you capitalize the in lieu of dividends amount into the cost of the stock.
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