Tax Dictionary
Short sale
A short sale, as applied to securities, is an agreement to transfer stock that the seller does not own or whose stock certificates are not in the seller's control but must be borrowed to cover the transaction. The borrowed stock must be replaced within a specified time through purchase on the market and transferred to the lender of the borrowed stock. For income tax purposes, there is no gain or loss on the transactions until the short sale is covered by purchase and transfer. Special rules apply for determining whether gain or loss on a short sale is a long-term or short-term capital gain or loss.