Can I take a tax deduction for worthless securities on my tax return?
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If you own securities and they become totally worthless, you can take a
tax deduction on your tax return for
a loss. You cannot take a tax deduction on your tax return for partially worthless securities. The
tax deduction on your tax return is only
available in the tax year the securities become completely worthless. You can't take the
tax
deduction on your tax return in any other tax year. If you have now learned that the securities became worthless
in a prior tax year for which you have already filed a tax return you can file a
tax
refund claim (Form 1040X )
within seven (7) years of the due date of the tax return for the tax year in which the securities
became worthless.The worthless securities are treated
on your tax return as though they were capital
assets sold on the last day of the tax year if they were capital assets in your hands.
Unless the worthless stock is Internal Revenue Code Section 1244 stock, for which ordinary
loss treatment applies, capital loss treatment applies.
You must show the following in order to take the
tax deduction on your tax return:
 | The securities became totally worthless in
2009. You must be able to reasonably fix the
date they became worthless, such as the date the company stopped doing business; and |
 | The securities had some value in
2008. |
If your securities are partially worthless you can sell them and then take the
tax deduction on your tax return as
you would in an ordinary sale of securities. No tax deduction can be taken
on your tax return for a partially
worthless corporate bond.
Report worthless securities on
Form 1040 Schedule D, line 1 or line 8 of, whichever
applies. In columns (c) and (d), write "Worthless."
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Related tax
information about worthless securities |
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Capital Losses
Itemized Tax Deductions |
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IRS publications about tax deductions and worthless securities:
For additional information, refer to IRS Publication 550, Investment
Income and Expenses (Including Capital Gains and Losses). For more information on bad
debts, refer to Tax Topic 453, Bad Debt Deduction. Also see
IRS Publication 17, Your Federal
Income Tax. |
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