How To Soften The Blow Of An Awful Investment With A Tax Deduction

If you jumped on a stock tip that sounded great at the time but only led to you losing your entire investment, now is the time to stop beating yourself up over the poor decision. You may be able to deduct your financial folly, lightening your tax load.

The Star-Ledger tells you how to do it. According to a financial planner interviewed in the story, you’ll have to claim the loss in the year in which it occurred, meaning you’ll have to pinpoint when your stock lost the last of its value. If your loss occurred before 2011, you’ll need to file an amended tax return for that year. The IRS gives you seven years to go back and set things straight.

To find out when your stock lost its value, you can try the Financial Stock Guide Service at (800) 367-3441 and ask it to research your stock for a fee. Your best bet is to contact your brokerage first.

Biz Brain: How to claim a loss for a worthless stock [The Star-Ledger]


Edit Your Comment

  1. TuxthePenguin says:

    If you’re going to try this, go see a CPA. You can get yourself into some trouble if you screw this up, especially if you amend a return.

    • dotkat says:

      I agree. Also, if you use the same CPA year after year, he or she can track your carry-forward loss, too. I always forget about that and my CPA reminds me to take it.

  2. Bsamm09 says:

    Until you sell it, it has not been realized and you cannot claim it. Also there are wash sale rules so you cannot buy it at 10 then sell when it hits 5 to claim the loss and then buy it back the following day. (Can take the loss when you sell it for good. 30 days)

    • George4478 says:

      The stock in question cannot be sold. It’s been deemed worthless and can no longer be traded.

      When this happened to a healthcare stock I owned, Schwab flagged it in my account as ‘worthless’ and removed it from my portfolio. I wrote it off on that year’s taxes, a little salve on a bad burn.

    • Bsamm09 says:

      I should have RTFA as I was commenting on regular stock gains and losses. But I would still monitor all you securities and if you have some that are worthless and you want to be sure you can take the loss, sell them to the brokerage house for a small amount. I sold some penny stocks I bought for $1 so the brokerage house would report the $1 sale and the IRS would pick it up when transmitted.

  3. Hoss says:

    So you say you bought stock but didn’t realize how to take a tax loss? Then you called an 800 number and paid them to tell you when the company folded? May I suggest you send me credit card details and I will advise you when a profitable bridge is for sale?

  4. eosphotog says:

    What is happening to Consumerist posts these days?!? This one is not helpful at all and at best is misleading. Tons of details were left out, and it is a not-so-cleverly hidden ad for a unnecessary service.

    If you sold the stock at a loss, you have record of that sale with your broker. You also have record of the basis to calculate the loss. Also there are several rules that must be followed to make this happen (as pointed out by others). I second the “go see a CPA” comment!!

    • TuxthePenguin says:

      They aren’t talking about a normal loss – they’re talking about a wipeout, usually during a bankruptcy, like the shareholders at the old GM. All that stock that they bought? Its worthless.

      I’m bothered that they even put this up – it happens so rarely that its not really a consumer issue.

      • eosphotog says:

        Even then the loss isn’t realized until you dispose of the stock. You have to work with your broker to do this, and there is an effective date (which is not the date the company went bankrupt, but rather when you disposed of the stock.

        • TuxthePenguin says:

          That’s technically not true. If part of the bankruptcy rule cancels the stock, you must take it during that tax year (unless of course you have a carryover that you cannot fully use, in which case it gets added to the remaining carryover).

    • pythonspam says:

      “What is happening to Consumerist posts these days?!? This one is not helpful at all and at best is misleading. “
      Eosphotog , May I Introduce Phil.
      Phil, Eosphotog

  5. mbgrabbe says:

    Any capital gain or loss resulting from a stock trade should get rolled into your income for whatever calendar year you sold it in. If you lost money in a trade, it counts against your taxable income and you will owe less tax. If you made money, your taxable income increases and you’ll owe more tax. Ideally, this should all be handled when you originally file your taxes…

    • eosphotog says:

      I recall that loss from stock sales only offset stock income, or is limited to a certain amount, and left-over stock losses can be saved to offset future stock income.

  6. Extended-Warranty says:

    This is not news. Every investment broker sends you all of your tax documents once the year ends. You have to enter all transactions. Whether you made or lost money. I got H&R Block Deluxe on sale for $20. It does it all just fine. I don’t need a $300 CPA.

    • Bsamm09 says:

      Those statements are not always correct. Sometimes they can be way off especially if you trade a lot throughout the year. Gainskeeper is software that does help.

    • TuxthePenguin says:

      This is a different duck than just normal gains and losses. This is a situation when your entire stock value has been wiped out, say by a bankruptcy, like the equity holders of the old GM corp.

      Most people don’t need to see CPAs for their returns. But when you get into esoteric parts of the code like this, you probably do, especially if you amend a prior return. Because if you get that wrong, the IRS will come down on you like a pile of bricks.

  7. ned4spd8874 says:

    Heads up! If you use Scottrade, don’t trust their tax form they send you! I found out last year that their calculations were wrong.

    I bought and sold some stock. But ended up with a loss still when you factor in what I bought it for, what I sold it for and the transaction fees. But Scottrade just reported the amount I gained when I sold the stock. Not taking in account what I actually paid for it!

    I had to ammend my previous year also so that I got my correct amount back.

  8. highdesert says:

    Enter text…