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I owned shares of the American Home Mortgage company, who filed for Chapter 11 protection earlier this year. I was fortunate in that the amount in question was not a huge sum, but I understand that there is a silver lining in the capital gains deduction which can now be taken on the net loss. (Not exactly what we invest for, but what the hey.)

I did an 'advanced search' of these boards to find out what I could about the specifics of owning shares of bankrupt companies, and the info was pretty good, although dated from 2000 and 2001. I'm assuming that the laws are the same regarding the capital gains deductions involved. I think I have the story straight for dealing with delisted shares of a Chapter 11 company:

The ticker symbol for American Home Mortgage has changed from 'AHM' to 'AHMIQ', with the 'Q' at the end indicating that the stock has been "pink sheeted" and is no longer listed on an exchange. I understand that if I want, I can choose to hold on to the now almost worthless shares, in the slim hopes that the company will re-emerge and become of value again.

Otherwise, I can sell the delisted shares, and only then would the transaction trigger off a capital gains / deductible net loss on Schedule D of this year's taxes. My online broker, Firstrade, lists the value of the shares as around ten dollars, so there would be just nickels left after they deduct their $7.00 trade fee for selling the shares.

Here's the question I still have: Does it matter to the IRS if I wait a couple more months, until the year 2008, to sell the shares and take the deduction? Is there a law that says I have to take the deduction in the same year in which the company files for Chapter 11? Or is the decision to sell the delisted shares mine to make when I choose to?

As always, thanks for your responses and generous knowledge-sharing on this board.

J.
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