Question

An investor goes short against the box to lock in a gain on a stock position that has been held for 11 months. 3 months later, the investor closes the short position with his long shares. Which of the following statements are TRUE?I. The holding period of the underlying stock stopped counting as of the short sale dateII. The holding period of the underlying stock stopped counting as of the delivery to cover the short positionIII. The gain will be taxed as a short term capital gainIV. The gain will be taxed as a long term capital gainA. I and IIIB. I and IVC. II and IIID. II and IV

Answer 1

Answer: I and III

Explanation:

From the question, we are informed that investor goes short against the box to lock in a gain on a stock position that has been held for 11 months. 3 months later, the investor closes the short position with his long shares.

The options that are true are:

• The holding period of the underlying stock stopped counting as of the short sale date.

• The gain will be taxed as a long term capital gain.