||Ask the Dollar Diva
What is a 'worthless' security?
Dear Dollar Diva,
I owned 100 shares of stock in a company that went into bankruptcy.
It had a reverse split of 100-to-one, and I now own one share of
stock worth 33 cents. How do I get rid of one share so I can claim
The question is, can you write the stock off as "worthless,"
or do you have to sell it to take the loss? The IRS considers a
security "worthless" when it has no current liquidation value, and
no expectation of ever being worth anything in the future. There
is no formula for determining when a security's value becomes zilch;
each case is judged by its particular facts and circumstances.
If the company went belly up, and you are sure you
will not receive a penny in liquidation, you should be able to write
your stock off as "worthless." If the stock actually has a trading
value, i.e. you could get 33 cents for it, you have to sell it in
order to take the capital loss.
If your stock is "worthless," claim the loss on Schedule
D, Capital Gains and Losses, of your Form
1040 Individual Income Tax Return. Report the date you acquired
the stock and what you paid for it on the appropriate lines, and
report "worthless" on the lines asking for the "date sold" and "sales
price." For purposes of determining if the loss should be claimed
as short-term (held one year or less) or long-term (held more than
one year), the IRS will treat the stock as if it were sold on the
last day of the year it became worthless.
Remember, the maximum capital loss a taxpayer can
deduct each year is $3,000. If your loss is more, the balance will
get carried forward to future years.
For more information on "worthless" securities, read
Publication 550, Investment income and expenses (including capital
gains and losses).
-- Posted: Sept. 7, 2000