How to Report a Loss for Worthless Securities on Your Taxes
- 1). Record the date of purchase and amount paid for the security. Write down any expenses connected with the purchase and holding of the security (commissions, fees or other costs to you). Establish the taxable year in which the security became worthless. If this is a year for which you have already filed a tax return, you need to file an amended return for that year.
- 2). Determine if your capital loss on the security is short-term or long-term. If more than a year elapsed from the purchase date to the date you established that the security became worthless, your loss is a long-term loss; less than a year makes it a short-term loss. This determination tells you where to enter the information on Schedule D of your Form 1040.
- 3). Fill out Schedule D for your Form 1040 with the information on your worthless security and on any other securities on which you had taxable capital gains or losses in the current tax year. Calculate your net short-term capital gain or loss; then calculate your long-term gain or loss. If these calculations show gains in both categories, you have an overall capital gains tax liability. A loss in either or both categories allows you to deduct up to $3,000 ($1,500 if married and filing separately) from your ordinary income. If the losses are greater than the allowed amount, you can carry them forward to subsequent years and use them to reduce your taxes resulting from your capital gains or ordinary income.
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