Before taking a tax deduction for worthless stock, you have to confirm that the investment no longer has any value. For example, the stock of companies in bankruptcy is not necessarily worthless. In addition, shares that no longer trade on a recognized stock exchange may still have value. Ask your securities brokerage firm if the stock is listed for sale anywhere. Worthless stock means the company has liquidated and doesn’t have any assets. If that describes your stock, treat the worthless shares as sold on the last day of the year they became completely worthless,and report a capital loss on your tax return.
1. Write a description of the stock in Column (a) of Schedule D. Use Line 1 if you owned the stock for less than one year as of December 31 or Line 8 if you owned the stock for more than one year as of year-end.
2. Record the date that you purchased the stock in Column (b).
3. Enter the last day of the year in Column (c).
4. Place a zero for sales price in Column (d).
5. State your purchase price for the stock in Column (e).
6. Subtract Column (e) from Column (d). Enter the resulting loss in parentheses in Column (f).
- Your loss on the worthless stock is deductible against capital gains reported on Schedule D. Any excess loss up to $3,000 is deducted against other sources of income on your personal income tax return.
- If your stock is qualified small business stock and you are the original owner, deduct an ordinary loss instead of a capital loss on Schedule D. See page 54 of IRS Publication 550 for the description of a Section 1244 small business corporation.
Items you will need
- Internal Revenue Service Schedule D
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