Claim total investment loss due to bankruptcy

[wgolab]

Hello, 

I have a crowdfunding "angel" investment loss of 30k in a company that went bankrupt in 2023. I've entered it under "other" sale, put 0 for proceeds, but TT will only allow the 3000 to be deducted and designates the rest for future carryover. How/where do I enter it to allow the full amount to be deducted this year because the company is now bankrupt? There is no K-1 or 1099-B or an documentation from the bankrupt company other than the letter/form from the state that the business filed for bankruptcy and dissolved. Thanks in advance for an help. 

[MarilynG1]

When you have a Capital Loss such as yours, it can be taken against any Capital Gain income you may have on your return.

If there is not sufficient amount of Capital Gain, then $3,000 each year can be taken until the entire loss has been used (carryover loss).

Here's more detailed info on How Capital Gains are Taxed. 

[wgolab]

Thanks, does the below not apply? This is what I would like to do.

 

A Special Case: Bankrupt Companies

You can take a total capital loss on the stock if you own stock that has become worthless because the company went bankrupt and was liquidated. But the IRS wants to know on what basis the value of the stock was determined as zero or worthless. You should keep some kind of documentation of the zero value of the stock, as well as documentation of when it became worthless.9

Any documentation that shows the impossibility of the stock offering any positive return is sufficient. Acceptable documentation shows the nonexistence of the company, canceled stock cerificates or evidence the stock is no longer traded anywhere. Some companies that go bankrupt allow you to sell them back their stock for a penny. This proves you have no further equity. interest in the company and it documents what is essentially a total loss.

[DianeW777]

Yes, it does apply to bankruptcy rules and is consider it a nonbusiness 'bad debt'.  Keep the documentation to prove the crowdfunding investment is completely worthless, never to return any of your investment.

A nonbusiness bad debt must be treated as a short-term capital loss. See Publication 550 for what qualifies as a nonbusiness bad debt (TurboTax will enter it on Part I of Form 8949).

How do I deduct worthless stock?

1. Type in investment sales in the search box, top right of your screen, then click the magnifying glass
2. Click the jump to investment sales link in the search results
3. Follow screens to enter your loss and online instructions 
4. Select short term since it is a bad debt from bankruptcy

@wgolab 

[wgolab]

I can't seem to get TurboTax to disregard the 3000 limit. Everything I try caps out at 3k. I've tried short term, long term, other sales. Typed in worthless, checked the worthless box. Is there somewhere I can find more detailed instructions or should I just use a different site?

[ee-ea]

@wgolab 

See this  IRS topic

https://www.irs.gov/taxtopics/tc409

[wgolab]

Thank you. I understand the concepts. I was , however, looking for detailed instructions on how to enter the information into TurboTax. I have entered the information several different ways and cannot get TurboTax to disregard the 3k limit. I am basically asking how do I enter the info of the investment loss so it all counts for 2023 instead of having to be carried over. 

[JamesG1]

This TurboTax Help states:

Generally, you cannot take a deduction for a bad debt from your regular income, at least not right away. It's a short-term capital loss, so you must first deduct it from any short-term capital gains you have before deducting it from long-term capital gains.

Finally, you can deduct up to $3,000 of any remaining balance from other income. If a balance still remains, you can carry it over to subsequent years.

In both TurboTax Online and TurboTax Desktop, enter 'nonbusiness bad debt' in the Search engine in the upper right hand corner of the screen.  Select 'Jump to nonbusiness bad debt'.

Or follow the excellent directions of @DianeW777 above.

@wgolab