Can I take a tax deduction for worthless securities on my tax return?

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:

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."