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To defer capital gains until the next tax year, the short sale must be covered before the end of January of the following year, the shares must be held for at least 60 days after the short is closed, and the shares must not be otherwise protected from loss by an alternative hedge strategy. Thus the short is closed by buying back the stock (to cover); and, to get the favorable tax treatment, you hold the owned stock for at least 60 days.
For details on using this technique for company stock as a year-end strategy (and the SEC regulations that may restrict you), see a related article elsewhere on this website.
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