If I hold a position long for one year or more and then sell, my capital gains will be 15%. However, if I sell before one year is up, then I have to pay taxes per my normal tax bracket.
However, what if I maintain a long position, but then I also enter a short position alongside the long position ("Sell Short Against the Box") whenever the stock price drops 0.25% below my average holding cost basis? And then, when the price rises back above my cost basis, I cover the short position.
This way, I would never exit my long position, and then any dips in the market would be neutralized.
Would this work and allow me to only pay 15% in capital gains once I sell?
As an example, let's say I bought AMZN stock at 750. Now let's say it dips 0.25% to 748.125. While maintaining my long position, I enter a short position at 748.125. Now let's say AMZN dips another 10% to 673.3125, but I haven't lost anything. Then, two months later it's back up at 748.15, so I cover my short position, and now I only have my long position once again. Then soon after the stock goes up another 1% to 755.63.
So, with this, I avoided losing money when the stock dipped down 10%, while avoiding selling off. So in theory, I would never have to report a sale of my AMZN long position the next year on my taxes, correct?
UPDATE Per Investopedia, it seems this won't result in a tax deferral:
"The Taxpayer Relief Act of 1997 (TRA97) no longer allows short selling against the box as a valid tax deferral practice. Under TRA97, capital gains or losses incurred from short selling against the box are not deferred. The tax implication is that any related capital gains taxes will be owed in the current year.
Submitted February 24, 2017 at 02:23PM by chaddjohnson http://ift.tt/2lO5Gje
