[hank1952]

When an individual shorts a stock, does the individual have to pay a capital gains tax on the initial sale of the securities or only on a profit upon covering?

[DamenATDMB]

I would assume only the profit.

[hank1952]

Thanks for the answer. I researched it further after posting the question, and discovered the shares shorted are not actually sold in a short transaction. Your broker would borrow the shares for a fee from the originator of the shares, and return the borrowed shares when the short position is covered. Your broker would then either pay out to your acct if you shorted successfully, or collect from your acct if it didn't work out for you. You'd only have to pay taxes if the broker paid out. The odds are in the broker's favor, since he'll charge you, on the average, between 8 and 9 percent for the "loan", plus a fee for the transaction.