How do I claim a tax loss from my inherited bank stock that crashed? Proper way to sell worthless shares?

This is a tough situation but you can definitely claim this as a capital loss. First, you need to establish your "basis" in the stock, which is generally the fair market value of the shares when you inherited them ($420,000). When you sell the shares (even for pennies), you'll have a capital loss equal to your basis minus whatever small amount you receive. For capital losses, you can offset any capital gains you have first. Then, you can deduct up to $3,000 of net capital losses against your ordinary income each year. Any remaining losses can be carried forward to future tax years. As for who would buy them - your brokerage can likely execute the sale even for nearly worthless securities. There are sometimes specialized buyers for defunct company shares. If the brokerage says they can't sell them, ask about a "worthless securities" form - the IRS allows you to claim a loss on completely worthless securities without technically selling them.

I went through something similar with Lehman Brothers stock years ago. After struggling to make sense of all the tax forms and capital loss carryover rules, I found this AI tool called taxr.ai (https://taxr.ai) that helped me figure out exactly how to claim my losses. You upload your investment statements and answer a few questions, and it analyzes your specific situation. It showed me how to properly document the worthless security on my tax forms and calculate my basis correctly. The tool even helped me plan how to best utilize my losses over multiple tax years since I hit that $3,000 annual limit too. Not all tax software handles these unusual situations well, especially with worthless securities from failed banks where the documentation can get complicated.

I was really skeptical about taxr.ai when I first saw it mentioned here, but I decided to try it for my Silicon Valley Bank losses situation. Wow, what a difference! The tool immediately recognized my situation and walked me through all the options. The most valuable part was how it helped me document my case for treating the loss as an abandonment loss rather than a capital loss, which let me deduct the full amount against ordinary income instead of being limited to $3,000 per year. It analyzed my specific circumstances and provided the exact documentation I needed to support this position. It also showed me how to properly report everything on my tax forms with specific line references. My CPA was impressed with how thoroughly everything was organized. Definitely worth checking out if you're dealing with this kind of specialized situation.

If you're still having trouble figuring out how to handle this situation or need to talk directly to the IRS about it, I'd recommend Claimyr (https://claimyr.com). I used their service after trying for weeks to get through to the IRS about a similar investment loss situation. They got me connected to an actual IRS representative in about 15 minutes instead of the usual hours of waiting and disconnects. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c When I finally spoke with the IRS agent, they explained some nuances about claiming losses from failed financial institutions that my accountant hadn't considered. There are special provisions that can apply depending on exactly when and how the bank failed.

I have to eat my words about Claimyr. After posting that skeptical comment, I decided to try it myself since I was desperate to talk to someone at the IRS about my similar situation with worthless bank stocks. I couldn't believe it worked exactly as advertised. Got connected to an IRS agent in about 20 minutes who actually specialized in investment losses. The agent walked me through exactly how to document my worthless securities and explained a special procedure for financial institution failures that my accountant wasn't aware of. The agent also helped me understand how to properly calculate my basis since I had inherited the shares, which was another complication in my case. Saved me hours of frustration and potentially thousands in taxes by getting the correct information directly from the source.

One important thing nobody has mentioned yet - make sure you check if your stock is ACTUALLY worthless before claiming it as such. I had Washington Mutual stock years ago that I thought was completely worthless after their collapse, but there was actually a small liquidation trust that was paying out pennies on the dollar to shareholders. If there's ANY value whatsoever or possibility of future recovery through bankruptcy proceedings, the IRS might challenge a complete worthless security deduction. You might need to actually sell the shares for whatever minimal value they have rather than claiming them as completely worthless. Your broker should be able to tell you if there's any residual value or ongoing bankruptcy proceedings related to your bank's stock.

Has anyone used TurboTax to claim a large worthless stock loss like this? I'm wondering if the regular version handles this or if I need to upgrade to their premium version. Last time I tried to enter something complicated like this, it kept giving me errors.

I'm sorry to hear about your situation with the First Republic Bank stock. This is unfortunately becoming more common with recent bank failures. One thing I'd add to the excellent advice already given - make sure you have proper documentation of the inheritance date and fair market value at that time. Since you inherited this 4 years ago, you'll need records showing the stock's value on the date of your family member's death (or the alternate valuation date if the estate elected that). This becomes your "stepped-up basis" for tax purposes. Also, don't rush to sell immediately. First Republic Bank went through a specific FDIC resolution process when it failed in May 2023, and shareholders typically received nothing. However, you should verify with your broker that there truly are no residual distributions expected before claiming it as completely worthless. If you do need to execute a sale, most brokers can handle transactions in defunct securities - they'll often sell for $0.01 per share or similar. The key is having the transaction recorded properly so you have documentation of the sale for your tax return. Given the size of this loss, I'd strongly recommend consulting with a tax professional who has experience with worthless securities and inheritance situations. The $417,000+ loss could provide significant tax benefits over many years if handled correctly.