Just because a company is in bankruptcy, or its stock isn't trading, doesn't necessarily mean it's worthless. If it's worth even a few pennies, it still has value in the eyes of the Internal Revenue Service.
If you truly do have a dead stock in your portfolio, you treat it on your tax return as if it were a capital asset you sold for zero dollars on the last day of the tax year.
When you report a worthless-stock transaction, you don't have to put the details of the stock's demise on your return.
However, tax experts say if you're questioned by the Internal Revenue Service, you need to be prepared to show:
•There is no hope investors will ever get anything for their holdings. This isn't always easy.
•When the security became worthless. You must reasonably determine the date the stock lost all its value.
Report the valueless stock on line 1 of Part I or line 3 of Part II of Form 8949, depending on whether it was a short-term or long-term holding. If an asset became worthless during the tax year, it is treated as though it were sold on the last day of the year. That could affect whether your capital loss is a short- or long-term one.
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