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Tax Planning/dividends paid on short sale.

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Question
Pub. 550 says I must add dividends paid on short sale to basis if the short is kept less than 45 days and that I CAN deduct the dividends paid if I keep the short more than forty five days.

My question is:  can I add dividends paid to the basis, instead of deducting them, for shorts held more than 45 days.  I don't itemize and would like to hold the position more than 45 days.

Thank you.  ..

Answer
No, you can't.  Pub 550 says:

"Payments in lieu of dividends. If you borrow stock to make a short sale, ... You can deduct these payments only if you hold the short sale open at least 46 days ... and you itemize your deductions.

"If you close the short sale by the 45th day after the date of the short sale ... you cannot deduct the payment in lieu of the dividend you make to the lender. Instead, you must increase the basis of the stock used to close the short sale by that amount."

Hope this helps.

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OWEN S. ARNOFF, EA

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As an Enrolled Agent, I am fully capable of providing tax advice as it relates to personal and business income taxes. Enrolled Agents are the only Federally licensed tax practitioners and are admitted to practice before all administrative functions of the IRS. My specialty is working with small business owners who file Schedule "C" and helping them to structure their business in such a way as to maximize as many tax advantages as possible. I also enjoy working with individuals who have both routine as well as complex tax situations. I prefer to concentrate on individuals and small business tax planning.

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I have a 25 year background in financial services including tax, bookkeeping, insurance, real estate and securities. I was previously the Chief Financial Officer of a local and national franchise organization. I am currently semi-retired, but used to own (in partnership with another EA) an individual and small business financial engineering firm where I work with nearly 2,500 individuals and small business owners in nearly every state and almost every continent, assisting them in all aspects of their tax and financial well-being. I have prepared or reviewed more than 8,000 tax returns in my career.

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National Association of Tax Professionals

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http://www.amazon.com/Owen-Arnoff/e/B00BLRIZNU/ref=ntt_dp_epwbk_2

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Enrolled Agent, Admitted to Practice Before the IRS, Accredited Tax Preparer, Fellow of National Tax Practice Institute, Certified QuickBooks ProAdvisor (1999-2011), Sleeter Group Certified QuickBooks Consultant, Life & Disability Insurance Agent License (California, Texas, Maine), Real Estate Agent License (California); Many years of continuing education in all these fields.

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