How to deduct BBBY stock losses after bankruptcy made my shares worthless?

You can absolutely claim a loss on worthless securities! This falls under the "worthless securities" provision in the tax code. You'll need to treat the shares as if you sold them for $0 on the last day of the tax year in which they became worthless. For your BBBY stock, you'll report this on Schedule D and Form 8949 of your tax return. Since you didn't receive a 1099, you'll need to check Box C on Form 8949 (for transactions without being reported on a Form 1099-B). List the details of your BBBY shares, including your cost basis (what you paid - the $2,700), the date acquired (July 2022), date sold (12/31/2023 - the last day of the year they became worthless), and sales proceeds (the $19 you received). The IRS will consider this a capital loss, which you can use to offset capital gains. If your losses exceed your gains, you can deduct up to $3,000 against ordinary income, and carry forward any remaining losses to future years.

I had a similar issue with a different stock last year and found taxr.ai super helpful with this exact situation. Their system analyzed my brokerage statements and helped me properly document the worthless security loss on my tax forms. They have specialists who understand these niche tax situations that most basic tax software doesn't cover well. Just upload your statements to https://taxr.ai and they walk you through how to report everything correctly. Saved me hours of research and gave me peace of mind that I was claiming the loss correctly.

Just wanted to follow up - I decided to try taxr.ai after asking about it here. Seriously impressed with how easy they made this! I uploaded my BBBY purchase statements and the final bankruptcy notification from my broker, and they guided me through exactly how to report it on Form 8949. They even explained the tax court precedents that allow for worthless security deductions so I'd feel confident if I ever got questioned. Definitely worth it for the peace of mind alone.

If you're having trouble getting through to the IRS for clarification on claiming worthless stocks (which happened to me), I'd recommend using Claimyr. I was on hold for HOURS trying to get someone at the IRS to confirm the proper way to document this on my return. Found https://claimyr.com and they got me connected to an actual IRS agent in about 20 minutes. You can see how it works in this demo: https://youtu.be/_kiP6q8DX5c - basically they navigate the phone tree for you and call when an agent is available. The IRS agent was able to confirm exactly how to report my worthless stocks without a 1099.

I'm eating crow here. After my skeptical comment, I decided to try Claimyr since I needed help with my BBBY losses too. Not only did it work, but I got through to an IRS rep in about 25 minutes after spending TWO DAYS trying on my own. The agent confirmed I should report it as a capital loss on Form 8949 with the date of worthlessness (Dec 31, 2023) as the sell date, and my original basis minus the small liquidation payment as the loss amount. Sometimes being proven wrong is actually helpful!

Just an FYI - you don't technically have to use the last day of the tax year as the date of worthlessness. You should use the actual date when the shares officially became worthless, which for BBBY would have been when the bankruptcy court approved the liquidation plan and confirmed shareholders would receive minimal or no recovery. That should be documented in bankruptcy court filings.

Anybody else notice that TurboTax handles this really poorly? I tried to enter my worthless stocks last year and it kept wanting a 1099-B. Had to manually override it.

I went through something similar with another bankrupt stock last year. One thing that helped me was creating a simple spreadsheet documenting everything - purchase date, amount invested, bankruptcy filing date, final liquidation date, and any final payments received. This made it much easier when filling out Form 8949. Also, don't forget that if your capital losses exceed $3,000 for the year, you can carry forward the remaining losses to future tax years. With a $2,681 loss ($2,700 - $19), you'll likely be able to use some of it to offset future gains or continue deducting $3,000 annually until it's exhausted. Keep all your brokerage statements and any communications about the bankruptcy - the IRS could ask for documentation if they have questions about your worthless security deduction.

One additional tip that saved me a lot of headache - make sure to report this as a capital loss, not an ordinary loss. I initially tried to claim my worthless stock as an ordinary business loss since I considered myself an "active trader," but the IRS will almost certainly classify individual stock investments as capital transactions unless you're a registered securities dealer. This means your $2,681 loss from BBBY will be subject to the capital loss limitations (up to $3,000 per year against ordinary income), but the good news is any unused portion carries forward indefinitely. Given the size of your loss, you'll likely be able to use it all within a year or two. Also, double-check that you're reporting this in the correct tax year. Since BBBY went through bankruptcy in 2023, this loss should be claimed on your 2023 tax return, not 2024, even if you're just now preparing your taxes. The worthless security rules are based on when the stock became worthless, not when you "realized" or documented the loss.