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Subject:  Re: Company went bankrupt.What do I do w/the sto Date:  2/8/2001  12:56 PM
Author:  irasmilo Number:  45969 of 127613

Your stock loss is independent of your standard deduction and ultimately will be reported on Schedule D. Unfortunately, you can't report it until you sell the stock or it becomes worthless. Worthless in a tax sense means that there is absolutely no chance that the shares will ever have any value, ie., the company has closed its doors and liquidated all its assets and the creditors are still owed money.

This is not the same as the company declaring bankruptcy. Many companies' stocks still trade while they are bankrupt (even if only for pennies a share). And often, the companies reorganize and emerge from bankruptcy. Sometimes the stock resumes trading, sometimes it is declared worthless. If you want to guarantee being able to take the loss on your 2001 taxes (next year), you need to sell the shares this year. Many brokers will agree to buy shares like this for $1 (total, not per share).

If you think that there is a chance that the stock may someday recover some value, an alternative is to sell the shares to certain family members. IIRC, you can't sell to direct ancestors, descendents, spouse or siblings -- but, in-laws, aunts/uncles, cousins, nieces/nephews are ok. (Hopefully, someone else will chime in if my memory is faulty.) Then if the stock recovers, you've kept the gain "in the family."

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