Can you deduct worthless stock?

The short answer, and what it depends on

You can deduct a loss on stock that has become worthless, but the rules are narrower than the headlines suggest. Publication 550 gives the loss a specific treatment: if the stock, stock rights or bonds become completely worthless during the tax year, they are treated as though you sold them on the last day of the year. A stock that has fallen 95% but still trades is not worthless; you have an unrealized loss, and the way to realize it is to sell it. The deduction depends on proving total worthlessness, and the year it happened.

The publication excludes securities held for sale by a securities dealer from this rule. For ordinary investors, the key facts are the date the stock became worthless and your basis, which is usually what you paid including commissions.

How the loss is calculated

Because the stock is treated as sold for nothing on December 31, your capital loss equals your adjusted basis in the shares. Whether the loss is short-term or long-term is decided by comparing your purchase date with December 31 of the year of worthlessness. The publication points out that treating the sale as occurring on the last day of the year affects whether your loss is long-term or short-term. If you bought the shares on July 1 and they became worthless later that year, the loss is short-term. If you bought them on January 15 of the previous year or earlier, the loss is long-term, because you held them more than one year at December 31.

The loss is reported on Form 8949, Part I or Part II, whichever applies. It goes into your capital loss netting like any other: short-term losses offset short-term gains, long-term offset long-term, and the net flows to Schedule D.

The $3,000 limit and carryovers

Publication 550 limits the deduction for a net capital loss to the lesser of $3,000 ($1,500 if you are married and file separately) or your total net loss. Anything above that is carried to the next year and keeps its short-term or long-term character. The publication’s example: Bob and Shelly have a $7,000 capital loss on a joint return and no other capital transactions. They deduct $3,000 and carry over $4,000. Use short-term losses first when computing the carryover.

Try it in the calculator above. A $5,000 worthless position and no other gains or losses gives a $5,000 loss, a $3,000 deduction against income this year and a $2,000 carryover. With $4,000 of other capital gains in the same year, the same loss nets to a $1,000 net loss, which you can deduct in full. (The publication also adjusts the carryover for taxable income through its Worksheet 4-1; the calculator shows the simple $3,000 case, so use the worksheet for a real return.)

Missed the year? The 7-year refund window

This is the most important special rule. If you do not claim a loss for a worthless security on your original return for the year it became worthless, you can file a claim for credit or refund. Use Form 1040-X for the year the security became worthless. The publication says you must file within 7 years from the date your original return for that year had to be filed, or 2 years from the date you paid the tax, whichever is later. Other claims generally have 3 years from filing or 2 years from payment. For a security that became worthless in 2025, the original return was due in April 2026, so the 7-year claim window runs into 2033.

Abandoned securities

The publication adds that securities you abandon after March 12, 2008 also count as worthless. To abandon a security, you must permanently surrender and relinquish all rights in it and receive no consideration in exchange. Facts and circumstances decide whether it was an abandonment or something else, such as a sale, a contribution to capital, a dividend or a gift. Selling for even a token amount is a sale, not worthlessness.

Evidence to keep

The publication does not set a checklist, but the practical burden is on you to show the stock had value at the start of the year and none at the end. Typical evidence is a bankruptcy liquidation order showing no distribution to shareholders, a delisting notice, or a broker statement that removes the position at zero. Keep it with the purchase confirmations that establish basis.

Related: bad debts and loans

A loan you made that cannot be collected is not a stock. Nonbusiness bad debts follow separate rules in Publication 550: they must be totally worthless and are treated as short-term capital losses. If you guaranteed a debt or lent money to someone, read that section before using this page.

Limits of this page

This page covers individual investors holding stock, rights or bonds as capital assets. It does not cover business bad debts, small business stock losses that may qualify as ordinary losses under section 1244, or securities held by dealers. For other ways to use a realized loss, see the tax loss harvesting calculator, and for gains to offset, the capital gains tax calculator.

Sources

• IRS Publication 550, Investment Income and Expenses (2025): Worthless Securities, Filing a claim for refund and Capital Losses (Limit on deduction, Capital loss carryover) in chapter 4; Nonbusiness bad debts in chapter 4. Page last reviewed or updated by the IRS April 30, 2026. Read November 2, 2026.

Edition read: Publication 550 (2025), for use in preparing 2025 returns. Dollar limits and thresholds quoted on this page are for 2025 and can change; check the current publication and form instructions for your tax year. This page summarizes the publication and does not replace it. Marked for human review.