Using a short sales strategy to increase tax efficiency in a taxable stock portfolio Richard Toolson
By: Toolson, Richard B
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Material type: 
ArticlePublisher: 2021Subject(s): ACCIONES | COMPRAVENTA | PLUSVALIAS | IMPUESTOSOnline resources: Click here to access online
In:
Journal of Taxation of Investments v. 38, n. 3, Spring 2021, p. 3-12Summary: The after-tax return on equities is negatively impacted by selling appreciated stock and recognizing capital gains. Even an investor who adopts a buy-and-hold strategy inevitably will fi nd it necessary to recognize capital gains at some point—due to such reasons as the need to rebalance a portfolio from equities to fi xed income or to sell a stock with an outsized position in the portfolio in order to reduce risk, or because an appreciated stock has been acquired for cash by another company. While capital losses may be used to offset capital gains, in a period of rising stock prices capital losses will often be insuffi cient to offset capital gains. A strategy that sophisticated investors might employ to address this problem is to use short sales to increase the likelihood of having suffi cient capital losses to offset capital gains. This could be done while still maintaining a 100 percent net long position. This article explains the mechanics of this strategy and why it might be viable.
| Item type | Current location | Home library | Call number | Status | Date due | Barcode |
|---|---|---|---|---|---|---|
| Artículos | IEF | IEF | OP 235/2021/38/3-1 (Browse shelf) | Available | OP 235/2021/38/3-1 |
Disponible también en formato electrónico.
Resumen.
The after-tax return on equities is negatively impacted by selling appreciated stock and recognizing capital gains. Even an investor who adopts a buy-and-hold strategy inevitably will fi nd it necessary to recognize capital gains at some point—due to such reasons as the need to rebalance a portfolio from equities to fi xed income or to sell a stock with an outsized position in the portfolio in order to reduce risk, or because an appreciated stock has been acquired for cash by another company. While capital losses may be used to offset capital gains, in a period of rising stock prices capital losses will often be insuffi cient to offset capital gains. A strategy that sophisticated investors might employ to address this problem is to use short sales to increase the likelihood of having suffi cient capital losses to offset capital gains. This could be done while still maintaining a 100 percent net long position. This article explains the mechanics of this strategy and why it might be viable.
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