Worthless stock carry over

[onemoment]

We invested employee stocks in my husband's startup. When the startup was bought over, those stocks were worth nothing. After reporting the worthless stock in 2020, can the loss be carried over to the 2021 tax year as capital gain loss or ordinary loss?  thanks

[PattiF]

The loss would be carried over to the tax year 2021 as a capital loss. This would be either a short-term loss, held for less than a year or a long-term loss, held for more than a year.

If your capital losses exceed your capital gains, the amount of the excess loss that you can claim to lower your income is the lesser of $3,000 ($1,500 if married filing separately) or your total net loss shown on line 16 of Schedule D (Form 1040). Claim the loss on line 7 of your Form 1040 or Form 1040-SR. If your net capital loss is more than this limit, you can carry the loss forward to later years. You may use the Capital Loss Carryover Worksheet found in Publication 550, Investment Income and Expenses, or in the Instructions for Schedule D (Form 1040) PDF to figure the amount you can carry forward.

[onemoment]

Thank you. I am not sure if my 2020 worthless stock was reported correctly.

There is no automatic carryover of $3000 loss from 2020 worthless stock. Anything I can do to correct it now on the 2021 tax return? can I manually add 3000 loss carry over? 

[PattiF]

Yes, you can manually add a carryover loss. Here are instructions to do this,

• Click on Federal on the left side of the online program screen
• Click on Wages & Income at the top of the online program screen
• Scroll down to Investment Income
• Click on Show More
• On Capital Loss Carryover, click the start button

Or enter capital loss carryover in the Search box located in the upper right of the program screen. Click on Jump to capital loss carryover

You may need to amend the 2020 tax return to correct the worthless stock sale if needed. If the IRS sends a letter about this, just amend it to report the worthless stock.