Definition of Short Against The Box

Short Against The Box is a short position established against an equal long position in the security to roll tax liabilities forward. Most of the benefits of establishing a short against the box position have been eliminated.

Applying "Short Against The Box" to Securities Exams:

If a customer wants to delay a tax consequence from one year into the next, the customer can take a position whereby he is "short against the box".

Ex: a customer owns 500 shares of XYZ stock and he wishes to sell. However, its the end of the tax year and the customer doesn’t want to incur the tax consequence of the sale until next year. The customer, in his margin account, can sell short 500 shares of XYZ. Once the tax year rolls over the customer will use his long XYZ shares to cover his short XYZ position. The tax consequence is delayed from one year into the next because the gain or loss isn’t realized until the customer covers the short position. Again, most of the benefits associated with short against the box have been negated by changes to the tax code.

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