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I invested in a Co. that went out of business. How can I claim this stock loss on my taxes; what's that proper code description?

Irvine, CA |

I have 100K shares of a Co that is no longer doing business. Finished. I'm cutting my losses. Can I make this bad investment work in my favor come April 15th? Do I have tax options to consider? Thank you.

Attorney Answers 3

Posted

See IRS Publication 550, Chpt 4 -- Worthless Securities --
http://www.irs.gov/publications/p550/ch04.html#en_US_2012_publink100010315

You use Form 8949. You can see the instructions and form at --
http://www.irs.gov/uac/Form-8949,-Sales-and-Other-Dispositions-of-Capital-Assets

If you realized the loss during 2012, then you can claim it on your 2012 return. But if occuring in 2013, then you'll have to wait you file the return for this year in 2014.

As the other attorney mentioned, the Code section is 165. You can read it at -- http://www.fourmilab.ch/ustax/www/t26-A-1-B-VI-165.html

Do you have tax options? Not much, from what I can tell. If the company is not doing business, it seems to me you are exercising your best action, which is to get out and claim whatever happens to be the loss.

This answer or response should not be considered legal advice, and does not create an attorney-client relationship. If you have further questions, I would be glad to discuss your situation further. I can be reached at US - (801) 746-6300, or online at -- http://www.lewishansen.com/attorneys/robinson.html

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Posted

Internal Revenue Code Section 165, which provides for "ordinary loss" as opposed to "capital loss" of worthless stock to the extent of your basis is the beginning of the analysis. Since there are numerous regulations under this code section, you need to work with your CPA or a tax attorney to verify that your situation qualifies.

The above is general legal and business analysis. It is not "legal advice" but analysis, and different lawyers may analyse this matter differently, especially if there are additional facts not reflected in the question. I am not your attorney until retained by a written retainer agreement signed by both of us. I am only licensed in California. See also avvo.com terms and conditions item 9, incorporated as if it was reprinted here.

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Posted

Since it is $150K, I might spread this loss thru several years--or all at once. Do you have a ball park figure of the potential credit that that loss would generate?

Posted

It appears as though this would be classified as a capital loss as a wothless security. You would be able to take the full loss and offset it against capital gains that you have. If you have no capital gains to offset then you would be limited as to how much you can deduct as a loss (generally $3000 per year).

I am a CPA and Attorney if you need tax preparation help for 2013. Give me a call.

BW 877-497-0627

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