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Tax Planning/dividends paid on short sale.


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.  ..

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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