Short Sales reported as Long Term Capital Gain/loss

Ben

My short term short sales are being reported as long term gain/loss. Why. Is there a way to correct this problem. Appreciate any help

Tom Young

I just did a test "short term" short sale - a ShtSell action followed by a CvrShrt action - using R29.22 and the sale was properly reported on the Capital Gains report.  Changing the term to "long term" resulted in the entire transaction still being reported in the Short Term section of the Capital Gains report, properly.

What version of Quicken are you using and what actions are you using to record the transaction?

miklk

Short Sales at a LOSS are reported incorrectly.

The problem is that they are doing it on purpose.

I have been trying to get them to report the sales correctly as they are reported but so far I have not got their attention (especially now that Covered shares are reported to the IRS so Quicken will not match your 1099)

From Quicken Help File:

Due to the complex tax rules governing short sales, all short sales that result in capital gains are categorized as Short Term and all short sales that result in losses are categorized as Long Term.

This general rule is used because there is not enough information to assign a more accurate holding period. Overall, it is a conservative approach to reporting your short sale losses, and errors will over-report your tax liability rather than under-report it. Your short sale losses, however, may be reportable as short term.

We advise that you consult your tax advisor to best determine which holding period is correct for your short sales.

Tom Young

Since you posted that "long term gain/loss" was being misreported I only did my test for covered short term gain situations. I have to give Quicken a break here because the tax rules in this are are extremely complex and it would take a considerable amount of programming to try and get it right - programming that's possibly subject to change every year as tax law changes!

miklk

This happened many years ago before brokers were reporting covered shares to IRS but since this info is being sent to IRS now, it should match  in my opinion.

Ben

I don't understand the programming problem. Look at the date of the sale, and of the purchase. No matter which occurred first, if the dates are less than a year apart, I believe it should be reported as a Short Term trade.

Rocket J Squirrel

Ben said:

I don't understand the programming problem. Look at the date of the sale, and of the purchase. No matter which occurred first, if the dates are less than a year apart, I believe it should be reported as a Short Term trade.

It's not that simple. See IRS Publication 550. You can find verbiage such as

As a general rule, you determine whether you have short-term or long-term capital gain or loss on a short sale by the amount of time you actually hold the property eventually delivered to the lender to close the short sale.

Example. Even though you do not own any stock of Ace Corporation, you contract to sell 100 shares of it, which you borrow from your broker. After 13 months, when the price of the stock has risen, you buy 100 shares of Ace Corporation stock and immediately deliver them to your broker to close out the short sale. Your loss is a short-term capital loss because your holding period for the delivered property is less than 1 day.

Tom Young

"I don't understand the programming problem. Look at the date of the sale, and of the purchase. No matter which occurred first, if the dates are less than a year apart, I believe it should be reported as a Short Term trade. "

There you go... What you've stated here is not always correct.  One of the simplest examples would be writing a covered call against stock that you've owned for over a year and the stock gets called away.  The entire transaction - premium for writing the call and the sale of the stock get combined into one long term transaction.

Ben

Thank you. I appreciate the reference to the IRS Pub. 550. So now it appears that shorts sales are always short term. So why do some of my closed short sales appear under LongTerm Gain Loss.

Tom Young

@Ben

"So why do some of my closed short sales appear under LongTerm Gain Loss. "

Look up at @miklk 's 10/24 post where he copied and pasted Quicken's "Help" statement.

Eclectic Taste

I've also experienced this "feature" of Quicken's reporting short sales. I exported the report to Excel, added a column to calculate holding period, subtract sell date from purchase date to get number of days stock was held. It gives negative days held for short sales, positive for traditional, but anything less than 365 (positive or negative holding days) is still short term. I separated the report at 365 days and subtotaled each as LT & ST. I haven't yet received my 1099 from my broker, but I'll give this to my CPA to make sure everything is correct.

I haven't ever exercised a long term option like in the example above, but I guess that would need to be flagged somehow when you enter the trade into Quicken register. Maybe show sale of the option and the underlying as 2 separate transactions, so the option part gets LT treatment, and the stock purchase & delivery as ST, even though they happen simultaneously.

dave7865

Thanks everyone for this discussion. Looking for the source for @miklk 's 10/24 post I found this: https://www.accountantforums.com/threads/quicken-04-capital-gains-report.28747/ which in turn contains a link to an intuit support site that no longer exists. The internet archive has a record of it though: https://web.archive.org/web/20041217131825/http://www.intuit.com:80/support/quicken/2003/win/7099.html