How to claim tax deductions for investment losses on a completely delisted stock?
I started investing heavily in this company back in 2021 that I really believed in. Fast forward to March last year, and they filed for Chapter 11 bankruptcy protection and the stock is completely delisted now - not trading anywhere. I'm pretty devastated because I never sold a single share and basically lost my entire investment, which was around $135,000 total (built up over those years). I'm trying to figure out how to handle this on my taxes. How exactly do I report these losses on what are now worthless securities? Does it matter that these investments were made over multiple years since 2021, but became worthless all at once? Can I claim the entire loss for this tax year or does it have to be spread out somehow? I've never had to deal with this situation before and I'm completely lost on how to properly document this for the IRS. Any guidance would be hugely appreciated!
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Sophia Miller
Sorry to hear about your investment loss. For tax purposes, worthless securities are treated as though they were sold on the last day of the tax year in which they became worthless. Since your stock became worthless when the company filed for Chapter 11 last March, you can claim the loss on your 2023 return (which you'll file in 2024). You'll report this on Schedule D and Form 8949. You'll enter the sale date as 12/31/2023, with a sale price of $0, and your original cost basis (the $135,000 you invested). Make sure to check box C on Form 8949 and enter code "W" in column (f) to indicate worthless securities. Keep all your records showing when you purchased the shares and for how much, as well as documentation proving the securities became worthless. You may be limited to deducting $3,000 of net capital losses per year against ordinary income, with the ability to carry forward remaining losses to future tax years. If you have other capital gains this year, your loss can offset those gains completely.
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Mason Davis
•Can they claim the total $135k all at once since it became worthless in a single event, or does the $3,000 annual limit still apply? Also, what kind of documentation would prove the securities are worthless? Just news about the bankruptcy?
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Sophia Miller
•The $3,000 limitation applies to net capital losses used to offset ordinary income. So if OP has no other capital gains this year, they can deduct $3,000 against their regular income and carry forward the remaining $132,000 to use in future years. For documentation, bankruptcy filings are good evidence. Other acceptable proof would include notices from the broker, news reports about the delisting, or stock exchange notifications. The key is documenting both that the securities are genuinely worthless and when they became worthless.
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Mia Rodriguez
I went through something similar last year with a biotech company that crashed. After spending hours trying to figure it all out, I found this tool called taxr.ai (https://taxr.ai) that literally saved my sanity. You upload your investment docs and it analyzes everything to calculate your losses correctly, especially for complicated situations like worthless securities. The best part was that it helped me determine the exact date to claim the worthlessness (which matters for tax purposes) and automatically filled out all the right codes for Form 8949. It even generated a summary document explaining the worthless security treatment that I could attach to my return in case of an audit.
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Jacob Lewis
•Does it work with data from any brokerage? I use a smaller platform and sometimes tax software doesn't recognize my files.
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Amelia Martinez
•I'm skeptical about these tax tools. How does it actually prove the securities are worthless? The IRS has specific requirements for that determination, and I've heard horror stories about people getting audited for claiming losses incorrectly.
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Mia Rodriguez
•It works with all the major brokerages and most smaller ones too. I was using Fidelity and TD Ameritrade and it handled both perfectly, but they have a compatibility checker on their site where you can verify your platform. For proving worthlessness, the tool actually helped me compile the right documentation. It flagged that I needed the official bankruptcy filing notice and delisting confirmation from the exchange. Then it created a special attachment for my return that explained the technical justification for claiming the loss in that specific tax year. My accountant was actually impressed with how thorough it was.
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Jacob Lewis
Just wanted to update everyone - I tried taxr.ai after reading about it here and it was honestly a game-changer for my situation. I had a similar investment loss with a company that went through bankruptcy restructuring, and I was confused about whether to claim it as worthless or wait. The system analyzed my investment history and determined that I could officially claim worthlessness based on specific actions the company had taken. It generated all the proper forms with the right codes (including that "W" code the expert mentioned) and even created documentation explaining why the timing was appropriate for claiming the loss. Definitely worth checking out if you're dealing with investment losses that aren't straightforward sales.
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Ethan Clark
I see people mentioning software solutions, but honestly when I had a major investment loss, the most impossible part was getting someone from the IRS to confirm I was handling it correctly. Tried calling for WEEKS with no luck. Finally used Claimyr (https://claimyr.com) and got through to an IRS agent in about 20 minutes. They have this system that navigates the IRS phone tree and holds your place in line, then calls you when an agent is available. You can see how it works in this demo: https://youtu.be/_kiP6q8DX5c but basically it saved me from the endless hold music hell. The IRS agent confirmed exactly how to report my worthless securities and what documentation to keep. Peace of mind was totally worth it.
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Mila Walker
•How does this actually work? Do they have some special access to the IRS or something? I've literally tried calling dozens of times and never get through.
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Amelia Martinez
•This sounds too good to be true. I've spent HOURS on hold with the IRS and eventually get disconnected. There's no way some service can magically get through when millions of other callers can't. And even if you get through, most IRS agents give different answers to the same question anyway.
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Ethan Clark
•They don't have special access - they use technology that continuously calls and navigates the IRS phone system for you. It's all explained on their site, but basically their system keeps trying different paths through the IRS menu options until it finds an opening, then it holds your place in line. When an agent finally answers, the system calls you and connects you immediately. You're right that different IRS agents sometimes give different answers. That happened to me too. But I was able to get through to a specialist in the investment division who clearly knew about worthless securities treatment. He walked me through exactly what forms and codes to use, which matched what my tax software recommended. Sometimes you just need that official confirmation.
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Amelia Martinez
I need to eat my words about being skeptical of these services. After my last comment, I was still struggling with my own investment loss situation and decided to try Claimyr since I was desperate for answers from the IRS directly. It actually worked exactly as described. The system called me back after about 30 minutes and connected me to an IRS tax specialist. I explained my situation with some worthless options contracts, and they confirmed the exact reporting method (which was different than what I thought). They also explained what documentation I needed to keep in case of an audit. For anyone dealing with unusual investment losses, getting the official word directly from the IRS really helps with peace of mind. I'm shocked to say this actually delivered what it promised.
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Logan Scott
One thing nobody's mentioned yet - check with your brokerage about how they're reporting this! My broker actually issued a corrected 1099-B for my worthless securities last year, which made the reporting much easier. Some brokerages will automatically report the shares as worthless with a $0 proceeds amount, while others won't. If your broker doesn't report it correctly, you'll need to make the adjustment yourself on Form 8949.
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Chloe Green
•Do you know which brokerages typically handle worthless securities correctly? I'm with E*TRADE and their reporting seems inconsistent based on what I've read in their forums.
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Logan Scott
•In my experience, Fidelity and Charles Schwab tend to handle worthless securities pretty well and will often issue the corrected 1099-B showing the $0 proceeds. E*TRADE is hit or miss - it sometimes depends on whether the security is formally declared worthless through a specific process or just effectively worthless through delisting. The important thing is to compare what's on your 1099-B with your actual situation. If your 1099-B doesn't show the worthless securities transaction at all, you'll need to add it yourself on Form 8949 with the appropriate "W" code. If it shows the transaction but with incorrect information, you'll need to make an adjustment with the appropriate code.
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Lucas Adams
Has anyone dealt with the situation where the company filed Chapter 11 but might emerge from bankruptcy eventually? I'm in a similar boat with about $80k invested in a company that's currently in reorganization. Not sure if I should claim the loss now or wait to see if the stock regains any value after restructuring.
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Sophia Miller
•This is an important distinction. Chapter 11 is reorganization, not liquidation (which would be Chapter 7). If there's a possibility the company will emerge from bankruptcy and your shares might retain some value, the securities may not technically be "worthless" yet. For a security to be considered worthless for tax purposes, there should be no reasonable hope of recovery. If the company is actively going through reorganization and there's a chance—even a small one—that shareholders will receive something, you might need to wait until that process concludes.
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Jamal Thompson
I'm dealing with a very similar situation and really appreciate all the detailed advice here. One additional point that might help - if you have any documentation showing when the delisting actually occurred (like notices from your broker or the exchange), keep those records too. The IRS can be particular about the exact timing of when securities became worthless. Also, for anyone else reading this thread - if you made investments across multiple tax years like the original poster did, it doesn't matter for the worthless securities treatment. You still report the entire loss based on your total cost basis in the year the securities became worthless, not spread across the years you purchased them. The $3,000 annual limitation against ordinary income that was mentioned is key to understand - you can offset unlimited capital gains with your loss, but if you don't have other gains, you're limited to deducting $3,000 per year against regular income with carryforward for the rest.
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Fatima Al-Hashimi
•Thank you for that clarification about the timing documentation - that's really helpful! I'm actually in a somewhat similar situation with a smaller loss (thankfully not $135k like the OP), and I've been wondering about the carryforward aspect. If someone has a large loss like this that they'll be carrying forward for years, do they need to do anything special each year when filing, or does the tax software typically handle tracking the remaining loss balance automatically? I'm worried about making mistakes in future years if I have to manually track what's left to deduct.
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