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For most purposes, the tax law uses the trade date for both purchases and sales. For example, if you sell stock with a trade date of December 31, you’ll report the gain or loss that year, even though the transaction will settle in January. Trade dates also govern in determining whether your holding period is short-term or long-term, in determining whether the wash sale rule applies, and in determining whether you have a qualified dividend.
Exceptions
You should be aware of a couple of exceptions:
When you close a short sale at a loss, the tax law treats the transaction as occurring on the settlement date. See Last Day to Sell.
If you hold more than one lot of shares and sell part of your holdings, you may want to identify the shares you’re selling. You can identify shares (or change your identification) until the settlement date. See How to Identify Shares."
@sm3, I do not read SA articles but I presume the article is saying settlement date and not trade date is the relevant for counting gains and losses. Let us wait for @msf and others to dig up the Revenue Ruling or other authority that shows for publicly traded widgets, it is the trade date not settlement date that is relevant for this purpose. Hopefully, the citations will also cover mutual fund trades and not just stocks and ETFs.
P.S.: I remember selling stocks and ETFs in the after market hours on the last trading date of 2008-2009 and taking the loss in the year of the trade (not settlement) and had looked up the authorities at that time. I do not recall the rules changed since then.
"What are the important tax-loss selling dates for 2023?
Tax-loss selling comes with many potential benefits, but it nevertheless has some strings attached.
The key thing for investors to remember is that it has deadlines. For investors filing their taxes in Canada, the last day for tax-loss selling in 2023 is December 27. Stocks purchased or sold after this date will be settled in 2024, so any capital gains or losses will apply to the 2024 tax year. The system differs for those filing their taxes in the US, and based on information from the IRS, the last day for tax-loss selling this year is December 29."
Edit/Add. I checked the SA article again, and its comments. This difference in Canadian and US rules is mentioned in some comments. While I don't see corrections in the article, the comments are now turned OFF.
In the US, I think the trade date vs settlement date for this purpose keys off of what is considered a closed transaction. I think publicly traded stock and ETF transactions are considered closed when the trade goes through. In any case, wait for someone to dig up the relevant citations.
I search the IRS web page but couldn't find anything specific in a short search. Most of the articles I googled did show that it is the trade date, except for short sales
Fairmark (Kaye Thomas) is at the top of my go to list for secondary sources. He's clearer than official pubs and IMHO at least as accurate as any other source.
He provides information and clear explanation not only on the exception for short sale losses, but on the exception to this exception - why short sale gains are not also included in this exception for closing out short sale positions.
Thanks @msf. I consider Fairmark as a good source. In cases where some doubts remain, I keep notes in my personal tax records on what source I used for what I was doing.
By the way, IRS Publication 550 is also quite clear on Holding Periods.
Pg 53 (Holding Periods): "Securities traded on an established market. For securities traded on an established securities market, your holding period begins the day after the trade date you bought the securities, and ends on the trade date you sold them.
Do not confuse the trade date with the settlement date, which is the date by which the stock must be delivered and payment must be made."
Pg 64, Installment sales. You cannot use the installment method to report a gain from the sale of stock or securities traded on an established securities market. You must report the entire gain in the year of sale (the year in which the trade date occurs).
See Pg 59 for more tricky rules on options straddles.
I read the fair mark article you posted. Do you know the date of the article? When I read articles I usually look for the date of the article and in this case I was not able to figure that out. Thanks.
P.S.: it turns out your first post came in while I was drafting my first post.
The page yogi cited contains this image of a book:
That image says 2023 Edition. It also has a link embedded taking you to more information about the book including: "2023 edition published May 2023". So the cited page most likely dates from May 2023 or later.
Evidence supporting this thesis is that in March 2023 the page was different. So the page was changed no earlier than March 2023.
Comments
Here is info from Fairmark,
https://fairmark.com/investment-taxation/capital-gain/stock-sales/trade-date-and-settlement-date/
https://fairmark.com/about/
"General rule: trade date controls
For most purposes, the tax law uses the trade date for both purchases and sales. For example, if you sell stock with a trade date of December 31, you’ll report the gain or loss that year, even though the transaction will settle in January. Trade dates also govern in determining whether your holding period is short-term or long-term, in determining whether the wash sale rule applies, and in determining whether you have a qualified dividend.
Exceptions
You should be aware of a couple of exceptions:
When you close a short sale at a loss, the tax law treats the transaction as occurring on the settlement date. See Last Day to Sell.
If you hold more than one lot of shares and sell part of your holdings, you may want to identify the shares you’re selling. You can identify shares (or change your identification) until the settlement date. See How to Identify Shares."
P.S.: I remember selling stocks and ETFs in the after market hours on the last trading date of 2008-2009 and taking the loss in the year of the trade (not settlement) and had looked up the authorities at that time. I do not recall the rules changed since then.
https://investingnews.com/daily/resource-investing/mark-these-tax-loss-selling-dates-on-your-calendar/
"What are the important tax-loss selling dates for 2023?
Tax-loss selling comes with many potential benefits, but it nevertheless has some strings attached.
The key thing for investors to remember is that it has deadlines. For investors filing their taxes in Canada, the last day for tax-loss selling in 2023 is December 27. Stocks purchased or sold after this date will be settled in 2024, so any capital gains or losses will apply to the 2024 tax year. The system differs for those filing their taxes in the US, and based on information from the IRS, the last day for tax-loss selling this year is December 29."
Edit/Add. I checked the SA article again, and its comments. This difference in Canadian and US rules is mentioned in some comments. While I don't see corrections in the article, the comments are now turned OFF.
He provides information and clear explanation not only on the exception for short sale losses, but on the exception to this exception - why short sale gains are not also included in this exception for closing out short sale positions.
https://fairmark.com/investment-taxation/capital-gain/stock-sales/last-day-to-sell/#exception-for-loss-from-short-sales
I see no need to look further. Thanks, yogi.
By the way, IRS Publication 550 is also quite clear on Holding Periods.
IRS Publication 550, Investment Income & Expenses (Including Capital Gains & Losses),
https://www.irs.gov/pub/irs-pdf/p550.pdf
Pg 53 (Holding Periods): "Securities traded on an established market. For securities traded on an established securities market, your holding period begins the day after the trade date you bought the securities, and ends on the trade date you sold them.
Do not confuse the trade date with the settlement date, which is the date by which the stock must be delivered and payment must be made."
Pg 64, Installment sales. You cannot use the installment method to report a gain from the sale of stock or securities traded on an established securities market. You must report the entire gain in the year of sale (the year in which the trade date occurs).
See Pg 59 for more tricky rules on options straddles.
I read the fair mark article you posted. Do you know the date of the article? When I read articles I usually look for the date of the article and in this case I was not able to figure that out. Thanks.
P.S.: it turns out your first post came in while I was drafting my first post.
That image says 2023 Edition. It also has a link embedded taking you to more information about the book including: "2023 edition published May 2023". So the cited page most likely dates from May 2023 or later.
Evidence supporting this thesis is that in March 2023 the page was different. So the page was changed no earlier than March 2023.