How to properly claim tax loss from major bank stock crash (SVB) - selling worthless shares

This is unfortunately a common situation with bank failures. You have what's called a capital loss, and yes, you can use it to offset your income taxes, but with some limitations. First, you need to actually sell the shares to realize the loss - even if they're nearly worthless. Your brokerage should still be able to execute the sale, though you'll likely get pennies. Once sold, this becomes a capital loss that you can report on your Schedule D tax form. For tax purposes, you can offset capital losses against capital gains without limit. If your losses exceed your gains (likely in your case), you can deduct up to $3,000 of capital losses against your ordinary income per year. Any unused losses can be carried forward to future tax years until they're used up. Given the size of your loss, you'll likely be carrying forward these losses for many years. The good news is there's no expiration date on carrying these losses forward.

After going through a similar nightmare with worthless stocks, I discovered taxr.ai at https://taxr.ai and it was honestly a game-changer for my situation. I uploaded my inheritance documents and brokerage statements, and it automatically identified the cost basis issues and tracked how the loss should be reported across multiple years. The thing that really helped me was how it showed exactly which specific tax forms I needed and precisely where to report the capital loss carryforwards each year. It even flagged that I qualified for some obscure tax provision because of when I inherited the shares.

Just wanted to follow up about taxr.ai that I asked about earlier. I decided to try it for my similar situation with some collapsed tech stocks, and wow - it actually worked amazingly well. The software found that my brokerage had recorded an incorrect acquisition date which would have caused major issues with my claimed loss. It also showed me how to time my sale to maximize the tax benefits and created a multi-year plan for using the losses. Definitely worth it for anyone dealing with significant investment losses like this. It found several special provisions related to worthless securities I had no idea existed.

If you're still holding those shares and need to talk to someone at the IRS about how to properly handle this situation (which I recommend), good luck getting through on the phone. I spent DAYS trying to reach someone about a similar inheritance issue. Finally I used https://claimyr.com and it was honestly the only way I got through. They have this system that navigates the IRS phone tree and waits on hold for you, then calls you when an actual agent is on the line. You can see how it works at https://youtu.be/_kiP6q8DX5c if you're curious. I had specific questions about Form 8949 for reporting my worthless securities that weren't addressed in any of the IRS publications, and needed clarification directly from them.

I need to apologize for my skepticism about Claimyr in my earlier comment. After waiting on hold with the IRS for 2+ hours and getting disconnected TWICE, I was desperate enough to try it. It actually worked exactly as described - I went about my day, and about an hour later got a call connecting me directly to an IRS agent. The agent was able to answer my specific questions about reporting worthless securities and gave me the exact codes I needed to use on Form 8949. For anyone dealing with complex tax situations like worthless stocks, being able to actually speak with an IRS representative makes a huge difference. They confirmed I could treat the shares as completely worthless without having to sell them first in certain situations.

A big thing you need to figure out is your cost basis. Since you inherited the stock, your basis should be the fair market value on the date of death (or alternate valuation date if the executor chose that). This is called a "stepped-up basis." For a large inheritance like that, there should be estate documents that show the valuation. Make sure you have those before filing, because using the wrong basis could cost you thousands in deductions.

Everyone is talking about tax benefits, but has anyone considered that some of these failed bank stocks might actually recover some value? After Washington Mutual collapsed in 2008, the worthless stock (WAMUQ) actually traded up to about 50 cents from nearly zero as speculators bet on leftover assets.