Short sale

It’s a short sale where you own the asset you’re selling short.
For example: you own 10,000 shares of stock in company ABC, but you have a very low basis, so if you sell them you’ll pay a ton of taxes. You borrow shares of ABC stock and sell them short.
 
“You borrow shares of ABC stock and sell them short.”-that’s what I don’t understand. When you have the stock, why borrow-and how does that work? the dealer just let you have it so that you can sell? and when you can sell, it also triggers tax liability- does it not ?
 
derswap07 wrote:”You borrow shares of ABC stock and sell them short.”-that’s what I don’t understand. When you have the stock, why borrow-and how does that work? the dealer just let you have it so that you can sell? and when you can sell, it also triggers tax liability- does it not?
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The borrowing and selling works just like any other short sale: you borrow shares from a dealer, sell them, then buy them back later to return them to the dealer. You also pay rent on the shares while you’re using them.
It doesn’t trigger a tax liability because you’re not selling your shares.
 
Ok. You can do this with any shares-then why ABC shares which you own-what’s the connection here?
 
You are trying to monetize and/or hedge a concentrated position. Doing this allows you to monetize the asset without triggering tax liabilities. With the short proceeds you can then invest in a diversified portfolio to earn the market rate of return with a 100% LTV on your ABC stock position.
 
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