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Do I report the loss of a stock due to bankruptcy as a sale…

Do I report the...

Do I report the loss of a stock due to bankruptcy as a sale without proceeds?

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A long term stock holding filed for bankruptcy in 2017. There is currently no value of the stock. I would like to claim it as a loss, but unsure how to do so.

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Answered in 2 minutes by:
3/31/2018
Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 14,872
Experience: Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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Hi. My name’s Lane.

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I hold a law degree, with concentration in Tax Law, Estate law & Corporate law, an MBA in finance, a BBA, and CFP & CRPS (Chartered Retirement Plans Specialist) designations, as well - I’ve been providing financial, Social Security/Medicare, estate, corporate, non-profit, and tax advice, since 1986.

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Yep. you have it right.

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The general rule for deducting losses on worthless investment securities is found in Sec. 165(g), which permits a loss deduction for a security that becomes worthless during the tax year, but only if the security is a capital asset in the taxpayer’s hands. (Stocks, of curse are capital assets)

...

The loss amount is determined by treating it as having resulted from a hypothetical sale or exchange of the security on the last day of the tax year in which the security becomes worthless. This deduction can be taken where the taxpayer is unable or unwilling to sell or otherwise dispose of the security in a taxable transaction

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Customer reply replied 4 months ago
Thank you

While the determination of worthlessness is often subjective, the courts have generally upheld it when there is no reasonable possibility that the investors will receive anything of value (see, e.g., Drachman, 23 T.C. 558 (1954)).

...

You'll treat this as a sale for $0 on 8949 which flows to schedule D

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Lane

Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 14,872
Experience: Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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