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Using futures to offset short-term gains

Discussion in 'TSLA Investor Discussions' started by confy, Aug 10, 2013.

  1. confy

    confy Member

    Jul 20, 2013
    Sorry if this has been discussed already. I was unable to find a discussion which used futures. If I short a future(sufficiently far expiry) now instead of selling my shares, and just deliver shares at expiry, do I avoid booking the profit as short term gains? Also, supposing the stock moves up before the expiry of the future and I decide to get out of the short future position, do I get to recognize the loss on the future as a short-term loss, possibly offsetting gains from short-term option holdings?
  2. hershey101

    hershey101 Member

    Jan 22, 2013
    New York, New York, United States
    #2 hershey101, Mar 16, 2014
    Last edited by a moderator: Mar 16, 2014
    I'm not sure what the above two comments have to do with the posted question. Mods can you please move these posts if they aren't relevant.
    @confy, sorry I don't have an answer to your question. My guess would be if you deliver your shares more than 18 months after aquiring them, you would end up paying long term taxes on them, otherwise short term if less than 18 months. If you get out of the short future position then I would assume you would be able to recoginize the loss against any short term taxes. I'm not a tax expert but these are my assumptions based on my knowledge of US tax laws.
  3. tentonine

    tentonine Member

    May 16, 2013
    Unfortunately, this is not the case. If your shares have only been held for the short term when you short the future, then your holding period is reset and starts again from the beginning when you sell the future (or it expires); i.e. your holding period is short-term again when you sell the future and does not become long-term for 12 months after that. This is because you have effectively entered into a tax straddle - the IRS straddle regulations encompass almost any situation in which two positions are offsetting.

    Furthermore, the straddle rules prevent you from recognizing the loss on the future until you sell the shares if your profit on the shares is greater than your loss on the future; if your loss on the future is greater than your profit on the shares, you can recognize loss only to the extent that it exceeds the profit.

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