Dividends Paid to a Broker When Short a Stock


W

W

How should one claim the dividends paid to a broker when short the stock?

It seems to me the right way to do it would be to net the dividend short
versus long and report that on 9a of the 1040. The two problems with that
are 1) The brokers don't report short dividend payments on their 1099-DIV,
so you will trigger disagreements with those documents and 2) It raises the
possibility that you would get a negative overall dividend number in line 9a
of the 1040, and I'm not sure that is even allowed.

We could report it on Schedule A line 14, as the payment is a percentage of
the principal amount of stock shorted, and it is implicitly similar to an
interest payment albeit not on a fixed payment schedule.

It could be reported on Schedul A, line 23, but that would have unfair tax
consequences and would fundamentally penalize a person for being short a
stock.
 
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A

Arthur Kamlet

How should one claim the dividends paid to a broker when short the stock?

It seems to me the right way to do it would be to net the dividend short
versus long and report that on 9a of the 1040. The two problems with that
are 1) The brokers don't report short dividend payments on their 1099-DIV,
so you will trigger disagreements with those documents and 2) It raises the
possibility that you would get a negative overall dividend number in line 9a
of the 1040, and I'm not sure that is even allowed.

We could report it on Schedule A line 14, as the payment is a percentage of
the principal amount of stock shorted, and it is implicitly similar to an
interest payment albeit not on a fixed payment schedule.

It could be reported on Schedul A, line 23, but that would have unfair tax
consequences and would fundamentally penalize a person for being short a
stock.
In general, if you hold that short position open for more than
45 days you treat your payments in lieu of dividends as
Investment Interest on Schedule A.


If you hold that short position open not more than 45 days,
you add your payments in lieu of dividends to the cost basis
of the stock.

See http://www.irs.gov/pub/irs-pdf/p550.pdf page 59, Payments
in lieu of dividends.
 

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