Question

The Williams have a stock they have held for over a year that they believe is worthless. It was bought for $100,000.

Can they take a $100,000 write-off? Why or why not? If not, what are the options for getting it out of their portfolio, and what would be the tax treatment?

Answer 1

• In the eyes of tax laws, worthiness is not depends upon the believes of anyone and as per IRS as well, in case of bankruptcy or stock is not trading doesn't means that it has no worth. No one can write-off the stocks based on worthiness and can treat in tax return only if it is realized/sold either for some value or not, means transfer of right must be there.
• In the present case, Williams can't write off the stocks even if it is worthless for Williams and if he want to write off or remove it from portfolio then he can transfer these stock either for some value or not.
• If Williams want to remove these stock from portfolio as worthless stock then he has to maintain proper details of these worthless stock as recommended by IRS like the date on which stock lost the value in the market and details of buyer & seller of these worthless stock because it is not possible to trade in worthless stock.
• Transaction of worthless stock will also result either in short term or long term capital gain or loss & tax accordingly and if loss is more that other capital gain then Williams can offset such loss against ordinary income up to $3,000 and excess loss will be carried forward to future tax years. And if Williams forget to treat the same in the year when stock loses its value then he can claim the credit of the same by filing the Form 1040X to amend the tax return of the year in which the stock loses its value.