A loss on the sale or exchange of personal use property, including a capital loss on the sale of your home used by you as your personal residence at the time of sale, isn't deductible. Only losses associated with property used in a trade or business and investment property (for example, stocks) are deductible.
If you own securities, including stocks, and they become totally worthless, you have a capital loss but not a deduction for bad debt. Worthless securities also include securities that you abandon. To abandon a security, you must permanently surrender and relinquish all rights in the security and receive no consideration in exchange for it.
- Treat worthless securities as though they were capital assets sold or exchanged on the last day of the tax year.
- You must determine the holding period to determine if the capital loss is short term (one year or less) or long term (more than one year).
- Report worthless securities on Form 8949, Part I or Part II, whichever applies. Indicate as a worthless security deduction by writing Worthless in the applicable column of Form 8949.