Taxation of dividends from a short sale

Home Fairmark Forum Taxation of Investments Taxation of dividends from a short sale

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  • #5101
    Bruce1950
    Participant

    Hello
    If I buy, say, 100 shares of XYZ in a margin (taxable) account, and give the brokerage the right to lend these shares to a short seller, who then sells them and will then pay the dividend to the new buyer, what will be the tax character of the ‘dividend’ the borrower pays to the new share owner?

    Let’s say the above 100 shares dividend paid by the company is 100% qualified dividends. Who gets to claim them as qualified….the first stock owner or the second stock owner who bought the borrowed shares? I’m sure they don’t both get to claim the dividend as qualified.

    Thanks

    BruceM

    #6659
    Lewis-H
    Participant

    Ordinarily, if you receive a dividend, it’s treated as investment income. … So long as you keep your short position open for longer than 45 days, then you’re allowed to deduct payments in lieu of dividends on short sales as investment interest.

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