Tax Refund


If you are an investor, it is likely that you have made an investment that went bad at some point.

The IRS won’t give you back the money you lost, but Uncle Sam will let you take a deduction for the loss. But there are some rules you must know.

  1. You can’t report it until the year the investment becomes worthless, so you’ll have to show that the stock had value at the beginning of the year, but not at the end of the year. If you bought stock in a company that went bankrupt, until the bankruptcy is discharged, you might not know whether you can collect anything, so you get no deduction until then.
  2. You can deduct losses on the sale of securities. If you believe that the stock won’t ever pay off, but you can’t prove it is worthless, sell it on the open market for a few pennies or a dollar to nail down your deduction.
  3. If you can’t sell the security, you can abandon it. You do that by giving up all rights in the security and not receiving anything in return.
  4. If you learn your investment became worthless in a prior year, file an amended tax return for that year to claim a refund. Though usually, you have just three years to file an amended return, in the case of worthless investments, you have up to seven years from the date your original return was due to claim a deduction.
  5. You report the loss on Schedule D of your tax return, and list it as though it were an asset sold on the last day of the year. TurboTax easily guides you through the interview and puts your tax information on the appropriate forms so you can take this deduction.

Before the Tax Cuts and Job Act of 2017 (TCJA), if you itemized your deductions on your tax return, you were also entitled to deductions for ongoing expenses in connection with your investments. These were listed on Schedule A of your return as miscellaneous deductions and are deductible to the extent they exceed 2% of your adjusted gross income. However, for tax years 2018 to 2025, the TCJA has eliminated “miscellaneous itemized deductions.” Investment expenses that used to qualify for this deduction included investment advice, IRA custodial fees, accounting fees, and some other investment costs.  

Though miscellaneous itemized deductions were eliminated, you can still deduct investment interest if you itemize your deductions. If you have borrowed on margin or against other assets such as your home to invest in stocks or bonds, you may be able to claim a deduction for the interest you pay each year. Your deduction is limited to the amount of investment income you have for the year, which includes interest and dividends. Any investment interest expense you can’t use this year can be carried over to future years.

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Ginita Wall
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