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Assume there are two like-kind capital assets: A and B.

Neither A nor B have ever been traded for dollars or any other currency prior to Day 1, and hence have no established market value.

Assume the portfolio starts with:

  • Position: 0A, 0B, and $10.

Day 1, Trade 1:

  • Short-sale of 1 A to get 5 B
  • Net Position: -1A, 5B, $10.

Day 2, Trade 2:

  • Purchase 1 A for $10
  • Net Position: 0A, 5B, $0

Day 3, Trade 3:

  • Sale of 5 B for $15
  • Net Position: 0A, 0B, $15

What would ultimately be reported for capital gains? (in the US Form 8949)

Hint: Situations like this occur in real-life, where A and B are cryptocurrencies (like bitcoin, but different flavors of cryptocurrency)

wdudz
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2 Answers2

1

Your net capital gains is $5.

At the start 1A = 5B.

So if at the start A = $5 then B = $1.

You would then buy A for $10 and make a loss of $5 on the short sale. Then you sell each B for $3 (total of $15) and make a $10 profit. Total net gain is $10 - $5 = $5.

If you start with A = $10 then B = $2.

You would then buy A for $10 and make no profit or loss on the short sale. Then you sell each B for $3 (total of $15) and make a profit of $5. Total net gain is again $5 ($0 + $5).

If you start with A = $15 then B = $3.

You would then buy A for $10 and make $5 profit on the short sale. Then you sell B for $3 (total of $15) and make no profit or loss. Total net gain is $5 ($5 + $0).

No matter what the initial values of A and B are your total net gain is always $5.

Victor
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0

There are two different answers.
1. If you buying the same product, that you sold, later collapse the trade from the beginning and end. Ending with a capital gain of $5.
2. These are different products, each buy and sell would be a separate transaction. This would end in $10 capital gains as according to the IRS, capital loss for items of personal use are not recorded.

Brythan
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Liam
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