Stocks, or securities, become worthless when they no longer hold any value on the stock market. A company's stock becomes worthless when it has no value or no potential value. This usually happens when a company liquidates its assets or closes down completely.
If you own stock or other securities that become worthless during the tax year, treat this as a capital asset that was sold or exchanged at a loss on the last day of the tax year. Worthless assets also include assets you abandoned, meaning that you permanently surrendered and relinquished all rights and did not receive anything in return. You must determine whether this transaction is either long term (asset held for more than one year) or short term (asset held for exactly one year or less).
How do I enter this on my return?
To report this transaction on your return, follow these steps:
- Income - Select my forms
- Capital Gains and Losses
- Capital Gains and Loss Items
- Complete the Date Acquired with the date you purchased the asset, for Date Sold check “alternate option” and then choose worthless either long or short term
- Check “alternate option” for sales price and select worthless
- Enter your cost basis and any necessary adjustments