Worthless Stock

[Just-Asking]

I have a few questions:

1. Can a stock I own, which became worthless when the company filed for chapter 11 bankruptcy in the middle of 2024, be considered a capital loss and reduce my tax liability even though I had no capital gains to report in 2024?

2. If the answer to 1 is "yes" , how can I report the loss on Turbo Tax? I did not receive any paper work from the two brokerage companies, where I bought the stocks, to show the stock is now worthless.

3. A continuation to question 2: Do I report the worthless stock loss from the two brokerage companies as a consolidated entry, or list them down individually?

[AnnetteB6]

Yes, the worthless stock can be claimed as a capital loss even without any capital gains to report on your 2024 tax return.  You will be able to claim up to $3000 of loss on your 2024 return, with anything over that amount being carried forward to future tax years.

It would be best to report the entries from each brokerage separately, unless they both have the same purchase dates and cost basis.

Entering the information for the worthless stock is the same process as entering any other investment sale, except for the following fields:  

• Your sales price will be zero
• Include the word 'worthless' in the description field
• Enter December 31st as the date sold

All other information will come from your records such as the cost basis and date acquired.

See the following TurboTax help article for guidance to enter investment sales:

Where do I enter investment sales?

[Just-Asking]

AnnetteB6,

Thank you for your advice.  A few more information/question based on your response.

1. I bought same stock on two separate Brokerage companies on the same date and the same cost basis. So report as a single transaction, consolidate quantities?

2. The link you provided suggests I manually create a 1099-B (since I did not get any from the Brokerage Companies) on Turbo Tax and enter the worthless stock information as you outlined?

[DawnC]

Yes, you can report them together and yes, you enter it as an investment sale using the 1099-B interview, whether or not you actually have a 1099-B.  

[Just-Asking]

DawnC

Thank you. What records should I keep in case a question/audit from the IRS arises from this entry?

[DawnC]

Keep records that support your loss.  Keep records that show that the stock is no longer traded, has declared bankruptcy, has no market value (if not publicly traded), or is in liquidation.  This can include public records, news articles, or correspondence from the company itself.

Period of limitations that apply to income tax returns

1. Keep records for 3 years if situations (4), (5), and (6) below do not apply to you.
2. Keep records for 3 years from the date you filed your original return or 2 years from the date you paid the tax, whichever is later, if you file a claim for credit or refund after you file your return.
3. Keep records for 7 years if you file a claim for a loss from worthless securities or bad debt deduction.
4. Keep records for 6 years if you do not report income that you should report, and it is more than 25% of the gross income shown on your return.
5. Keep records indefinitely if you do not file a return.
6. Keep records indefinitely if you file a fraudulent return.
7. Keep employment tax records for at least 4 years after the date that the tax becomes due or is paid, whichever is later.

[Just-Asking]

DawnC,

Thank you very much for your extensive response.