When you can deduct worthless shares

March 21, 2008

I own shares in a company that recently filed for bankruptcy. Assuming the shares were worthless, I claimed a loss for them on my 2007 tax return. Now I've learned that the company is still doing business and its shares may have some minimal value. What should I do now?

I own shares in a company that recently filed for bankruptcy. Assuming the shares were worthless, I claimed a loss for them on my 2007 tax return. Now I've learned that the company is still doing business and its shares may have some minimal value. What should I do now?

You'll have to file an amended return for 2007, since you claimed a loss before you were entitled to it. And if you can sell the stock shares this year, that would be wise. That way, you can claim the capital loss for 2008 without question. What if you still have the shares at the end of this year and their value remains in question? Claim the deduction for 2008, anyway, and file an amended return later on if it turns out that you were wrong. If you wait for definitive proof of worthlessness, which could be a long time in coming, you could end up forfeiting the opportunity. That's because you must take the deduction no later than seven years after the stock completely loses value. The countdown begins on the due date of your return for that year.