Yes, I know... I am kind of late .. trying to get my tax return done in time. Any advise/help is greatly appreciated!!

Here is the question:
Does capital loss only if you sell the stocks less than what you bought? What if stocks became no vaule(worthless) due to bankruptcy or what not. I came across below from IRS website:

Corporate Stocks
The following trades of corporate stocks generally do not result in a taxable gain or a deductible loss.

Corporate reorganizations. In some instances, a company will give you common stock for preferred stock, preferred stock for common stock, or stock in one corporation for stock in another corporation. If this is a result of a merger, recapitalization, transfer to a controlled corporation, bankruptcy, corporate division, corporate acquisition, or other corporate reorganization, you do not recognize gain or loss.

So this means I can't recognize the loss, do I understand this correctly?

 

What you describe is considered a "worthless security" to the IRS, and this is the guidance the IRS provides on them...

http://www.irs.gov/publications/p550/ch04....ublink100010315

Andrew

 

Thanks, Andrew. I did read that part but I guess I got confused when I read about the one I quoted in Blue.

Sorry, now I have another question, the section you quoted stated that

If you do not claim a loss for a worthless security on your original return for the year it becomes worthless, you can file a claim for a credit or refund due to the loss. You must use Form 1040X, Amended U.S. Individual Income Tax Return, to amend your return for the year the security became worthless.

so let's say the stocks was bought 2004 for $10,000 then they became worthless in 2006, so I need to file Form 1040X to amend 2006 tax return up to $3,000, then another 1040X for 2007 etc untill I use up the $10,000 loss, is this correct?

More reading more confused... is this true if I don't have any capital gain I can't utilized the loss?

 

I don't think you have to do amended past returns unless the security really went to $0 - which virtually never happens. A more common scenario is that you are holding a security that is approaching $0. Once you declare it being worthless by virtue of you contacting your broker and having them dispose of the shares, then you write them off as a loss that year.

e.g. I have several thousand shares of a bankrupt company in my brokerage acct right now. Each share is worth less than 1 penny. All totalled, the shares are worth maybe $6. It would cost me $9.99 to try to sell them (if I could sell them). So when I want to dispose of them, I have to call the broker, and tell them that I wish to dispose of the shares. And they may make me sign some form to that effect. Then a few days later the shares are gone. It cost me no money, and I can take the capital gains loss for the current tax year.

I am not an accountant or tax lawyer. This is not professional advice.

Andrew

 

I see what u were saying...but when on the statement from the broker, the current price said "NP", can I assume they are worthless?

I appreciate your input regardless if you're professional or not...

 

It's essentially the same as any other capital loss. You do you have to pinpoint a "sell" of some sort to realize the losses, which is what aklu mentioned above.

Also, working around people that do a lot of their own taxes that are fairly complex has taught me if in doubt, file an extension, and get help from a professional on that particular matter. Even the best guys will only charge 100-200$ if you have a single situation you need assistance with (versus say an entire return).

 

+1 on sahht's suggestion.

If you urgently need a CPA, go hire one instead of asking for advice on a car forum!