FAQ Captial Gains, Losses/Sale of Home: Losses (Homes, Stocks, Other Property)

Losses (Homes, Stocks, Other Property)

This is archived information that pertains only to the 2002 Tax Year. If you
are looking for information for the current tax year, go to the Tax Prep Help Area.

I own stock which became worthless last year. Can I take a bad debt deduction on my tax return?

If you own securities and they become totally worthless, you can take a deduction for a loss, but not for a bad debt.

The worthless securities are treated as though they were capital assets sold on the last day of the tax year if they were capital assets in your hands. Report worthless securities on line 1 or line 8 of Form 1040, Schedule D (PDF), whichever applies. In columns (c) and (d), write "Worthless." For additional information, refer to Publication 550 (PDF), Investment Income and Expenses (Including Capital Gains and Losses). For more information on bad debts, refer to Tax Topic 453, Bad Debt Deduction.

References:

Publication 550 (PDF), Investment Income and Expenses (Including Capital Gains and Losses)
Form 1040, Schedule D (PDF), Capital Gains and Losses
Tax Topic 453, Bad Debt Deduction

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