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2008 was a tough year for the stock market. If you suffered losses in a taxable account, you can use them to offset capital gains and even your income, to a certain extent.
But what if one of your stocks became completely worthless? You can write off the holding on your tax return as a worthless stock.
Before you can use this tax break, the stock must be totally worthless. Just because a company is in bankruptcy or its stock isn't trading doesn't mean it's worthless. Even if it's worth a few pennies, it still has value in the eyes of the IRS.
If you truly do have a dead stock in your portfolio, you treat it on your tax return as if it were a capital asset you sold for zero dollars on the last day of the tax year.
To claim this loss you need to report the worthless stock on Schedule D. Your losses, either short-term or long-term, can offset capital gains dollar for dollar. If you have more in capital losses than gains, you can use the excess loss to offset up to $3,000 in your ordinary income. Any additional losses can be carried forward to future tax years until they're all used up.
So you see, stock losses aren't a total loss after all. To learn more about capital gains and losses, visit Bankrate.com's Tax Guide.
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