Selling short against the box

Selling short stock that is actually owned by the seller but held in the box, meaning it is held in safekeeping. The seller borrows securities needed to cover as the stock in the box may be inaccessible, or the seller may not wish to disclose ownership. The traditional motive for this transaction was to defer capital gains taxes. However, this method became infeasible under the Taxpayer Relief Act of 1997.

Short Sell Against the Box

Describing the action of short selling a security one owns. When one sells against the box, gains and losses are equalized by the long position on a security combined with the short position created by the short sale. One formerly sold against the box generally in order to be able to claim profits on the sale in the following tax year, but the Taxpayer Relief Act of 1997 largely removed this loophole.

selling short against the box

See short against the box.

Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.

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References in periodicals archive

If a taxpayer owns a security (a long position), he is able to lock in the economic gain by "selling short against the box" (selling a borrowed security), or vice versa.

Constructive sales treatment for appreciated financial positions

Second, selling short against the box allows investors to protect securities with long-term upside potential from short-term risks.(182) For example, an investor might hold a stock that he believes has great long-term value.

Internal Revenue Code section 1259: a legitimate foundation for taxing short sales against the box or a mere makeover?

Effective for constructive sales after June 8, 1997, the TRA '97 removed from sophisticated investors the tax-deferral component inherent in "selling short against the box," futures contracts, forward contracts, equity swaps and notional principal contracts.

Capital gains after the TRA '97 - tax relief or mental strain?

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