Stock trades and realized gains/losses

[Derek Atkins]

First, I do think we are making progress here.  I think we've
acknowledged that the Split storage is sufficient, and that Lots help
(but may need a bit of tweaking).  We certainly need to fix the
register UI and how data is displayed to the user and entered BY the
user...

> > I've never heard of selling and the re-buying (on paper) a stock to
> > generate an unrealized gain transaction.  Do you have a reference for
> > doing it that way, or was it just the most expedient thing at the time?
> 
> ?? The IRS in the United States forces you to do it this way, if you
> want to take a loss on your taxes.   You can't just declare the loss,
> you have to sell and buy it back.  You incur some brokerage fees to do
> this, hopefully not too big.

Question: when you do this aren't you by definition REALIZING the
gain/loss, even if you never actually liquidate the shares?

I admit that I am not an accountant, but my understanding has always
been that UNrealized gains/losses were the on-paper, "if I sold now
this is how much I would make/lose based upon what I purchased the
stock for".  The realized gain/loss is obviously the result of the
sale transaction.  What I don't understand is what it means to "log"
UNrealized gain -- if the gain is UNrealized then you have not
actually MADE (or lost) that money.  It's just a potential.  So, if
it's just a potential then why are you actually trying to record it?

I suppose you could try to compare stocks to a house.  I purchased my
house for $100,000, and now it is "worth" $150k.  Obviously I'd like
to periodically record the change in equity in my asset: house.  But
this is just a transaction between Asset:House and Equity; there is no
transaction to any income/loss because I haven't gained or lost any
money.  The same is true with stocks..

Even when Enron failed, I haven't lost "money" until I actually sell
my shares.  I paid $100 for my stock, and the fact that I paid $100
never changes, regardless if that stock is worth $10 or $1000.  There
is no gain/loss until I actually liquidate or trade the shares.  So,
what does it mean to record an unrealized gain/loss in this situation?
It sounds like you are trying to record the fact that your $100
investment is now worth something more/less than $100.  But we already
do that through the pricedb -- you record the price at some period in
time and now you know that at time T your holdings were worth shares *
price.

Perhaps I don't understand what a "permanent change in value" is.
Matthew, you keep using that phrase but I don't understand it.  To me,
"value" is the "current value" which is "number of shares * current
price".  You clearly mean something else, but I have not figured out
what.  Could you help define it, please?

You started to give an example with Enron, but you never finished it.
Could you, please?  To me, the fact that Enron stock went from
$100/share to $1/share does not change the basis of your stock
holdings.  The "value" (my definition) is certainly MUCH lower (qty *
$1 vs. what used to be qty * $100) but it doesn't change the amount
you invested.

Are you trying to "write off" the loss now?  If that is the case, then
by the IRS rules you need to "sell" your shares to realize the loss.
You can, obviously, re-purchase the shares right back.  But at this
point the losses are REALIZED losses...  And you've now changed the
basis of your holdings.

-derek

-- 
       Derek Atkins, SB '93 MIT EE, SM '95 MIT Media Laboratory
       Member, MIT Student Information Processing Board  (SIPB)
       URL: http://web.mit.edu/warlord/    PP-ASEL-IA     N1NWH
       warlord@MIT.EDU                        PGP key available