Page 226 - Individual Forms & Instructions Guide

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The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.
selling securities for your own account. A trader may also hold securities for shares from your broker and sell them
To be engaged in business as a trader in investment. The rules for investors will for $100. This is a short sale. You later
securities, all of the following state- generally apply to those securities. Allo- buy 10 shares for $80 and deliver them
ments must be true. cate interest and other expenses between to your broker to close the short sale.
• You must seek to profit from daily your trading business and your invest- Your gain is $20 ($100 − $80).
market movements in the prices of se- ment securities. Holding period. Usually, your holding
curities and not from dividends, interest, period is the amount of time you actual-
or capital appreciation. Mark-to-Market Election for ly held the property eventually delivered
• Your activity must be substantial. Traders to the broker or lender to close the short
• You must carry on the activity sale. However, your gain when closing a
with continuity and regularity. A trader may make an election under short sale is short term if you (a) held
section 475(f) to report all gains and los-
The following facts and circumstan- ses from securities held in connection substantially identical property for 1
ces should be considered in determining with a trading business as ordinary in- year or less on the date of the short sale,
or (b) acquired property substantially
if your activity is a business. come (or loss), including those from se- identical to the property sold short after
• Typical holding periods for securi- curities held at the end of the year. Se- the short sale but on or before the date
ties bought and sold. curities held at the end of the year are you close the short sale. If you held sub-
• The frequency and dollar amounts “marked to market” by treating them as stantially identical property for more
of your trades during the year. if they were sold for fair market value than 1 year on the date of a short sale,
• The extent to which you pursue the on the last business day of the year. any loss realized on the short sale is a
activity to produce income for a liveli- Generally, the election must be made by long-term capital loss, even if the prop-
hood. the due date (not including extensions) erty used to close the short sale was held
• The amount of time you devote to of the tax return for the year prior to the 1 year or less.
the activity. year for which the election becomes ef-
fective. To be effective for 2022, the Reporting a short sale. Report any
You are considered an investor, and election must have been made by the short sale on Form 8949 in the year it
not a trader, if your activity doesn't meet due date of your 2021 return (not count- closes.
the above definition of a business. It ing extensions). If a short sale closed in 2022 but you
doesn't matter whether you call yourself Starting with the year the election be- didn't get a 2022 Form 1099-B (or sub-
a trader or a “day trader.” comes effective, a trader reports all stitute statement) for it because you en-
gains and losses from securities held in tered into it before 2011, report it on
Like an investor, a trader must gener- connection with the trading business, in- Form 8949 in Part I with box C checked
ally report each sale of securities (taking cluding securities held at the end of the or Part II with box F checked (whichev-
into account commissions and any other year, in Part II of Form 4797. If you pre- er applies). In column (a), enter (for ex-
costs of acquiring or disposing of the se- viously made the election, see the In- ample) “100 sh. XYZ Co.—2010 short
curities) on Form 8949 unless one of the structions for Form 4797. For details on sale closed.” Fill in the other columns
exceptions described in the Instructions making the mark-to-market election for according to their instructions. Report
for Form 8949 applies. However, if a 2022, see Pub. 550 or Rev. Proc. 99-17, the short sale the same way if you re-
trader previously made the mark-to-mar- which starts on the bottom of page 52 of ceived a 2022 Form 1099-B (or substi-
ket election (explained below), each Internal Revenue Bulletin 1999-7 at tute statement) that doesn't show pro-
transaction is reported in Part II of Form IRS.gov/pub/irs-irbs/irb99-07.pdf. ceeds (sales price).
4797 instead of on Form 8949. Regard-
less of whether a trader reports his or her If you hold securities for investment, Gain or Loss From Options
gains and losses on Form 8949 or Form you must identify them as such in your Report on Form 8949 gain or loss from
4797, the gain or loss from the disposi- records on the day you acquired them the closing or expiration of an option
tion of securities isn't taken into account (for example, by holding the securities that isn't a section 1256 contract but is a
when figuring net earnings from in a separate brokerage account). Securi- capital asset in your hands. If an option
self-employment on Schedule SE. See ties that you hold for investment aren't you purchased expired, enter the expira-
the Instructions for Schedule SE for an marked to market. tion date in column (c) and enter “EX-
exception that applies to section 1256 Short Sales PIRED” in column (d). If an option that
contracts. was granted (written) expired, enter the
A short sale is a contract to sell property
The limitation on investment interest you borrowed for delivery to a buyer. At expiration date in column (b) and enter
expense that applies to investors doesn't a later date, you either buy substantially “EXPIRED” in column (e). Fill in the
apply to interest paid or incurred in a identical property and deliver it to the other columns according to their instruc-
trading business. A trader reports inter- lender or deliver property that you held tions. See Pub. 550 for details.
est expense and other expenses (exclud- but didn't want to transfer at the time of If a call option you sold after 2013
ing commissions and other costs of ac- the sale. was exercised, the option premium you
quiring or disposing of securities) from a Example. You think the value of received will be reflected in the pro-
trading business on Schedule C (instead XYZ stock will drop. You borrow 10 ceeds shown in box 1d of the Form
of Schedule A). 1099-B (or substitute statement) you re-

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