Question
I own stock that became worthless last year. Is this a bad debt? How do I report my loss?
Answer

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.