CU professor calls “BS” on Romney’s 13 percent tax rate claim

[TruthAnalyzed]

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whatever you get out of "short a", in your example $50, you put back on 31 days later to re-establish the hedge.

But there is an important difference. You don't get back the benefit being down by $50 on Short A. When you re-establish your position, you are at break-even. There is no tax-benefit associated with that trade anymore, you have already realized it.

(IV) after 31 days, re-establish the artificial hedge
$150 cash -- short a (proceeds from selling stock)
= $550 total cash

Should be $150 cash -- Long A(the only one still open).

So yes, you have $550 in total, exactly the same as if you didn't open either A position. The difference is, instead of having $50 profit in actual cash, you have $50 profit in Long A.

you physically have realized your gain of $50, but for tax purposes you have offsetting gaines and losses (long r/short a). the re-established hedge has a floating gain of $50 which you can defer until whenever you want.

You haven't actually realized your gain, your gain is effectively sitting in the Long A position. Until you close that position, you haven't realized the gain. You are still at $400 cash, with a position worth $150.

Deferring the $50 gain in Long A is no different than leaving it in Long R. Your total scenario is exactly the same, with no realized profits in your cash balance.

Thanks for the link, I'll look at it.

But, still you haven't shown the supposed benefit from doing this.

Without the hedge, you could

A - Keep the position Long R, and either make more money, or lose your profits. $400 cash + $150 position = $550 total.
B - Close the position Long R. $550 cash. Once your stock goes into cash, you have realized your profit. It makes sense to pay taxes when your cash increases, not when your position value increases.

With the hedge, you could

A - Keep the position Long A, and either make more money, or lose your profits. $400 cash + $150 position = $550 total.
B - Close the position Long A. $550 cash. Once your stock goes into cash, you have realized your profit. It makes sense to pay taxes when your cash increases, not when your position value increases.

See? It's exactly the same, except for which stock you have an open position in. I would never suggest this, because you are going to be putting your profits into a stock that you won't necessarily think is a good position, by default. The position you take on the hedge fund depends on what happens with your real fund.

All there is is increased risk, with no increased reward.