Tax Facts

7532 / May an investor deduct expenses incurred in reimbursing the lender of stock in a short sale for stock dividends and liquidating dividends paid on the borrowed stock?

The cost of purchasing additional shares of stock to reimburse the lender for nontaxable stock dividends and any amount paid to reimburse the lender for a liquidating dividend are always capital expenditures and not tax deductible.1 As such, these amounts should be added to the investor’s basis in the stock used to close the short sale.

1. Rev. Rul. 72-521, 1972-2 CB 128.

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