TradeMax Glossary |Form 8949 Capital Gain & Wash Sales calculator software

Margin buying – Margin Interest


Margin buying is buying securities with cash borrowed from a broker, using other securities as collateral. This has the effect of magnifying any profit or loss made on the securities. The securities serve as collateral for the loan. The net value, i.e. the difference between the value of the securities and the loan, is initially equal to the amount of one’s own cash used. This difference has to stay above a minimum margin requirement, the purpose of which is to protect the broker against a fall in the value of the securities to the point that the investor can no longer cover the loan.

Margin Interest

Return on margin will also take into account peripheral charges such as brokerage fees and interest paid on the sum borrowed. The margin interest rate is usually based on the broker’s call.

Broker’s call, also known as the Call loan rate, is the interest rate relative to which margin loans

TradeMax provide MargLoan,MargPayback,MargIntest action for these events

Average Basis


You can figure your gain or loss using an average basis only if you acquired the shares at various times and prices, and you left the shares on deposit in an account handled by a custodian or agent who acquires or redeems those shares.

To figure average basis, you can use one of the following methods.

  • Single-category method.
  • Double-category method.

 

Once you elect to use an average basis, you must continue to use it for all accounts in the same fund. (You must also continue to use the same method.) However, you may use the cost basis (or a different method of figuring the average basis) for shares in other funds, even those within the same family of funds.

Example.

You own two accounts that hold shares of the income fund issued by Company A. You also own 100 shares of the growth fund issued by Company A. If you elect to use average basis for the first account of the income fund, you must use average basis for the second account. However, you may use cost basis for the growth fund.

You may be able to find the average basis of your shares from information provided by the fund.

 

 

Single-category method.   Under the single-category method, you find the average basis of all shares owned at the time of each disposition, regardless of how long you owned them. Include shares acquired with reinvested dividends or capital gain distributions. 

  Table 3 illustrates the use of the single-category method to figure the average basis of shares sold, compared with the use of the FIFO method to figure cost basis.

  Even though you include all unsold shares of a fund in a single category to compute average basis, you may have both short-term and long-term gains or losses when you sell these shares. To determine your holding period, the shares disposed of are considered to be those acquired first. 

Example.

You bought 400 shares in the LJO Mutual Fund: 200 shares on May 15, 2008, and 200 shares on May 14, 2009. On November 10, 2009, you sold 300 shares. The basis of all 300 shares sold is the same, but you held 200 shares for more than 1 year, so your gain or loss on those shares is long term. You held 100 shares for 1 year or less, so your gain or loss on those shares is short term.

   How to figure the basis of shares sold. To figure the basis of shares you sell, use the steps in the following worksheet.

1) Enter the total adjusted basis of all the shares you owned in the fund just before the sale. (If you made an earlier sale of shares in this fund, add the adjusted basis of any shares you still owned after the last sale and the adjusted basis of any shares you acquired after that sale.) $
2) Enter the total number of shares you owned in the fund just before the sale  
3) Divide the amount on line 1 by the amount on line 2. This is your average basis per share $
4) Enter the number of shares you sold  
5) Multiply the amount on line 3 by the amount on line 4. This is the basis of the shares you sold $

 

Example 1.

You bought 300 shares in the LJP Mutual Fund: 100 shares in 2006 for $1,000 ($10 per share); 100 shares in 2007 for $1,200 ($12 per share); and 100 shares in 2008 for $2,600 ($26 per share). Thus, the total cost of your shares was $4,800 ($1,000 + $1,200 + $2,600). On May 11, 2009, you sold 150 shares. The basis of the shares you sold is $2,400 ($16 per share), figured as follows.

1) Enter the total adjusted basis of all the shares you owned in the fund just before the sale. (If you made an earlier sale of shares in this fund, add the adjusted basis of any shares you still owned after the last sale and the adjusted basis of any shares you acquired after that sale.) $4,800
2) Enter the total number of shares you owned in the fund just before the sale 300
3) Divide the amount on line 1 by the amount on line 2. This is your average basis per share $16
4) Enter the number of shares you sold 150
5) Multiply the amount on line 3 by the amount on line 4. This is the basis of the shares you sold $2,400

 

Remaining shares.   The average basis of the shares you still hold after a sale of some of your shares is the same as the average basis of the shares sold. The next time you make a sale, your average basis will still be the same, unless you have acquired additional shares (or have made a subsequent adjustment to basis). 

Example 2.

The facts are the same as in Example 1, except that you sold an additional 50 shares on December 17, 2009. You do not need to recompute the average basis of the 150 shares you owned at that time because you acquired or sold no shares, and had no other adjustments to basis, since the last sale. Your basis is the $16 per share figured earlier.

Example 3.

The facts are the same as in Example 1, except that you bought an additional 150 shares at $14 a share on September 17, 2009, and then sold 50 shares on December 18, 2009. The total adjusted basis of all the shares you owned just before the sale is $4,500, figured as follows.

1) Basis of remaining shares ($16 x 150) $2,400
2) Cost of shares acquired 9/17/09 ($14 x 150) $2,100
3) Total adjusted basis of all shares owned ($2,400 + $2,100) $4,500
     

The basis of the shares sold is $750 ($15 a share), figured as follows.

1) Enter the total adjusted basis of all the shares you owned in the fund just before the sale. (If you made an earlier sale of shares in this fund, add the adjusted basis of any shares you still owned after the last sale and the adjusted basis of any shares you acquired after that sale.) $4,500
2) Enter the total number of shares you owned in the fund just before the sale 300
3) Divide the amount on line 1 by the amount on line 2. This is your average basis per share $15
4) Enter the number of shares you sold 50
5) Multiply the amount on line 3 by the amount on line 4. This is the basis of the shares you sold $750

 

Double-category method.   In the double-category method, all shares in an account at the time of each disposition are divided into two categories: short term and long term. Shares held 1 year or less are short term. Shares held longer than 1 year are long term. 

  The basis of each share in a category is the average basis for that category. This is the total remaining basis of all shares in that category at the time of disposition divided by the total shares in the category at that time. To use this method, you specify, to the custodian or agent handling your account, from which category the shares are to be sold or transferred. The custodian or agent must confirm in writing your specification. If you do not specify or receive confirmation, you must first charge the shares sold against the long-term category and then charge any remaining shares sold against the short-term category.  

Specific share identification


If you adequately identify the shares you sold, you can use the adjusted basis of those particular shares to figure your gain or loss.

 

  You will adequately identify your mutual fund shares, even if you bought the shares in different lots at various prices and times, if you:

  1. Specify to your broker or other agent the particular shares to be sold or transferred at the time of the sale or transfer, and
  2. Receive confirmation in writing from your broker or other agent within a reasonable time of your specification of the particular shares sold or transferred.

 

  You continue to have the burden of proving your basis in the specified shares at the time of sale or transfer.

First-in first-out (FIFO)


If your shares were acquired at different times or at different prices and you cannot identify which shares you sold, use the basis of the shares you acquired first as the basis of the shares sold. In other words, the oldest shares you own are considered sold first. You should keep a separate record of each purchase and any dispositions of the shares until all shares purchased at the same time have been disposed of completely.

Coordination of Loss Deferral Rules and Wash Sale Rules


Rules similar to the wash sale rules apply to any disposition of a position or positions of a straddle.

First apply Rule 1, explained next, then apply Rule 2. However, Rule 1 applies only if stocks or securities make up a position that is part of the straddle. If a position in the straddle does not include stock or securities, use Rule 2.

Rule 1. You cannot deduct a loss on the disposition of shares of stock or securities that make up the positions of a straddle if, within a period beginning 30 days before the date of that disposition and ending 30 days after that date, you acquired substantially identical stock or securities. Instead, the loss will be carried over to the following tax year, subject to any further application of Rule 1 in that year. This rule will also apply if you entered into a contract or option to acquire the stock or securities within the time period described above. See Loss carryover, later, for more information about how to treat the loss in the following tax year.

Rule 2. You cannot deduct a loss on the disposition of less than all of the positions of a straddle (your loss position) to the extent that any unrecognized gain at the close of the tax year in one or more of the following positions is more than the amount of any loss disallowed under Rule 1.

Successor positions.

Offsetting positions to the loss position.

Offsetting positions to any successor position.

Successor position. A successor position is a position that is or was at any time offsetting to a second position, if both of the following conditions are met.

The second position was offsetting to the loss position that was sold.

The successor position is entered into during a period beginning 30 days before, and ending 30 days after, the sale of the

loss position.

Dealers. If you are a dealer in stock or securities, this loss treatment will not apply to any losses you sustained in the ordinary course of your business.

Wash sales


Your holding period for substantially identical stock or securities you acquire in a wash sale includes the period you held the old stock or securities.

Stock splits


Figure the basis of stock splits in the same way as stock dividends if identical stock is distributed on the stock held.

Basis


Your basis in stock or stock rights received in a taxable distribution is their fair market value when distributed. If you receive stock or stock rights that are not taxable to you, see Stocks and Bonds under Basis of Investment Property in chapter 4 for information on how to figure their basis.

Put option as short sale


Buying a put option is generally treated as a short sale, and the exercise, sale, or expiration of the put is a closing of the short sale. See Short Sales, earlier. If you have held the underlying stock for 1 year or less at the time you buy the put, any gain on the exercise, sale, or expiration of the put is a short-term capital gain. The same is true if you buy the underlying stock after you buy the put but before its exercise, sale, or expiration. Your holding period for the underlying stock begins on the earliest of:

The date you dispose of the stock,

The date you exercise the put,

The date you sell the put, or

The date the put expires.

Short Sales


A short sale occurs when you agree to sell property you do not own (or own but do not wish to sell). You make this type of sale in two steps.

You sell short. You borrow property and deliver it to a buyer.

You close the sale. At a later date, you either buy substantially identical property and deliver it to the lender or make delivery out of property that you held at the time of the sale. Delivery of property borrowed from another lender does not satisfy this requirement.

You do not realize gain or loss until delivery of property to close the short sale. You will have a capital gain or loss if the property used to close the short sale is a capital asset.

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