How do I properly report a worthless security on my taxes?

When a security becomes worthless, it's treated as if you sold it for $0 on the last day of the tax year it became worthless. This creates a capital loss you can claim on your tax return. For your questions: 1. Brokers aren't required to report worthless securities on Form 1099-B. It's actually your responsibility to identify and report them. That's why you don't see it on your Schwab statement. 2. Yes, you report this on Schedule D and Form 8949. List the security, your cost basis, and a sale price of $0. In the "Date Sold" column, use 12/31/2024 (the last day of the tax year). Also, use code "W" in column (f) to indicate a worthless security. Make sure to keep documentation about the bankruptcy and when the stock became worthless. 3. Getting documentation from Schwab is a good idea. Ask for a letter confirming the security is worthless, or at minimum, account statements showing the security before and after it disappeared. Save any news articles or bankruptcy court documents about HealthPlus too. One important note: The IRS gives you 7 years to claim a deduction for worthless securities, so if you miss reporting it this year, you can file an amended return later. But it's best to report it in the correct year if you can determine when it became worthless.

I went through something similar with a biotech stock last year. I ended up using taxr.ai (https://taxr.ai) to help me figure out how to document the worthless security correctly. They reviewed my account statements and the bankruptcy documents and gave me really specific instructions for my tax return. They even helped me draft a letter to request the right documentation from my broker. The IRS is pretty strict about requiring proof that a stock became completely worthless in the specific tax year you're claiming. Without the right documentation, you could face issues if you're audited. What I learned was that the "reorganization" transaction in your account is usually the key moment when the stock is officially deemed worthless.

Just wanted to update that I tried taxr.ai for my worthless security situation with Fidelity. Really glad I did because they pointed out something I would have missed completely. Apparently my stock wasn't technically "worthless" by IRS standards - it was a "substantially worthless" situation which has different reporting requirements. They reviewed my Fidelity statements and bankruptcy documents and showed me exactly how to report it correctly. They also helped me document everything properly in case of an audit. The process was super straightforward and I feel much more confident about my tax return now. Definitely worth checking out if you're unsure about your HealthPlus situation.

I had a similar issue with worthless securities last year. I spent HOURS on hold trying to reach someone at the IRS who could clarify how to report it. Eventually I found Claimyr (https://claimyr.com) - they got me connected to an actual IRS agent in about 20 minutes who walked me through the whole process. You can see how it works here: https://youtu.be/_kiP6q8DX5c The IRS agent told me that the most common mistake people make is not having sufficient documentation to prove when the security became worthless. They said I needed both my broker's statement showing the reorganization AND documentation of the bankruptcy proceedings finalizing. Getting to speak with a real IRS agent saved me from making a costly mistake.

I need to apologize and eat my words about Claimyr. After my skeptical comment, I decided to try it anyway out of desperation because I had a deadline coming up for resolving an issue with a worthless security from last year. I was connected to an IRS agent in about 25 minutes (not even the full 30 minutes they estimated). The agent was able to confirm exactly what documentation I needed for my situation and clarified that I could still claim my worthless security loss by filing an amended return since it was within the 7-year window. For anyone dealing with worthless securities, getting direct confirmation from the IRS saved me a ton of stress and potentially avoiding issues down the road. I'm now certain I'm filing correctly instead of just hoping I interpreted the tax code properly.

Don't forget that worthless securities are almost always capital losses, which means you can only deduct up to $3,000 against ordinary income per year. If your loss is $15,800 like the OP's, you'll be carrying forward that loss for several years. Also, if you owned this stock for less than a year before it became worthless, it's a short-term capital loss. If you owned it for more than a year, it's long-term. This matters because you have to use up capital losses against the same type of gains first (short against short, long against long) before you can cross-apply them.

One important thing nobody's mentioned - be careful with the date you claim it became worthless. The IRS is very specific that you must claim it in the year it actually became worthless, not when you discovered it was worthless. From my experience, the reorganization transaction date (your Oct 17) is typically when the broker is recognizing it as worthless, but you should check if that's actually when the company bankruptcy was finalized or if something else happened on that date.

Based on your situation with HealthPlus (HPIQ), it sounds like you're dealing with a classic worthless security scenario. The "Reorganization - 950" transaction on 10/17/2024 is likely when your broker processed the stock as worthless following the bankruptcy proceedings. Here's what you need to do: 1. **Documentation is key** - Contact Schwab immediately and request a letter confirming that HPIQ became worthless on 10/17/2024. Also ask for account statements showing the stock before and after that date. Save any bankruptcy court documents or news articles about HealthPlus's final liquidation. 2. **Report on Schedule D and Form 8949** - You'll need to manually report this since it won't appear on your 1099-B. Use 10/17/2024 as your sale date (not 12/31/2024 as some suggest - use the actual date it became worthless), $0 as the sale price, and your original cost basis. Enter code "W" in column (f) on Form 8949. 3. **Capital loss treatment** - Your $15,800 loss will first offset any capital gains you have this year. Any remaining loss can be deducted up to $3,000 against ordinary income, with the rest carried forward to future years. The fact that HPIQ doesn't appear in Schwab's worthless securities lookup actually supports that it's been officially deemed worthless. Just make sure you have proper documentation before filing, as the IRS scrutinizes worthless security claims closely.