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Author: educatedidiot Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121599  
Subject: Tax Loss Question Date: 1/17/2003 11:56 AM
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Lets say an investor purchases 10 shares of company XYZ at $50. Over the span of one year, the stock falls to $1. The company then conducts a 30 to 1 reverse split. The net result in this account is that the 10 shares will be removed; however, $10 is deposited in the account to compensate for the value of the shares.

Question: Is this investor able to claim a tax loss? The investor does not have any shares to sell so how would he claim one?

Thanks in advance.
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Author: RiverCityFool Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 63044 of 121599
Subject: Re: Tax Loss Question Date: 1/17/2003 12:47 PM
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Do some further checking with an expert, but it appears to me that since the investor was given cash in lieu of receiving a partial share, in effect his shares *were* sold. So, he'd treat it as a $40 loss (that is, if you meant he purchased 10 shares at $5 each for a total price of $50; if he purchased 10 shares at $50 each for a total of $500, it'd be a $490 loss).

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Author: lorenzo2 Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 63045 of 121599
Subject: Re: Tax Loss Question Date: 1/17/2003 12:57 PM
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RiverCityFool is right - the $10 is a cash-in-lieu payment for a fractional share. It is a sale from an IRS viewpoint, and goes on Schedule D - in this case, as a capital loss.

Lorenzo

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Author: educatedidiot Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 63046 of 121599
Subject: Re: Tax Loss Question Date: 1/17/2003 1:01 PM
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RiverCityFool is right - the $10 is a cash-in-lieu payment for a fractional share. It is a sale from an IRS viewpoint, and goes on Schedule D - in this case, as a capital loss.

Great, thanks for the quick response both of you. I still need to check that it works this way in Canada too, but I wouldn't expect it to be any different.

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