Can You Write Off a Stock That Goes to Zero?

This article answers: can you write off a stock that goes to zero? It explains U.S. federal rules for worthless securities, reporting steps (Form 8949/Schedule D), wash-sale limits, special excepti...

2026-01-13 05:59:00

By Cipher Trio

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Can You Write Off a Stock That Goes to Zero?

Short description: This article answers the question "can you write off a stock that goes to zero" and summarizes the practical significance: whether and how an investor can claim a tax deduction when a publicly traded security becomes worthless (falls to zero or becomes unsellable). The focus is U.S. federal tax treatment with brief notes on other jurisdictions and cryptocurrencies.

As of 2024-06-30, according to IRS guidance and mainstream investor resources, investors who hold securities that become worthless can often claim a capital loss treated as if sold on the last day of the tax year. This guide explains how that works, how to document the loss, reporting steps, common pitfalls, and practical measures you can take — and notes how Bitget and Bitget Wallet can help you maintain records and manage positions.

Key question up front: can you write off a stock that goes to zero? Yes, in many cases a worthless security can produce a deductible capital loss on your U.S. federal return if you establish worthlessness and follow IRS reporting rules. The rest of this article explains how, when, and what to watch out for.

Overview — Worthless Securities and Tax Consequences

Stocks and publicly traded securities are generally treated as capital assets for tax purposes. A capital loss arises when a capital asset is sold, exchanged, or otherwise disposed of for less than the investor's adjusted basis. A security that becomes completely worthless during the tax year is treated as if it were sold on the last day of that tax year for tax purposes — meaning you can recognize a capital loss equal to your adjusted basis in the security.

Understanding the distinction between an unrealized (paper) loss and a realized, deductible loss is essential. A decline in market price alone does not create a deductible loss. To claim a deduction, there must be a recognized disposition or a legally accepted determination of worthlessness or abandonment.

This distinction answers the core prompt: can you write off a stock that goes to zero? Only if the stock is demonstrably worthless or otherwise disposed of in a manner that the tax rules accept.

U.S. Federal Tax Rules for Worthless Stock

The U.S. Internal Revenue Service treats a worthless stock as a capital loss. Important points:

Deemed disposition date: A stock that becomes completely worthless during the tax year is treated as if sold on the last day of that tax year (typically December 31). Reporting is for the year in which worthlessness is established.
Holding period: The stock's holding period (short-term vs. long-term) is computed up to the deemed date of disposition (last day of the tax year). That holding period determines whether the loss is short-term or long-term for tax offset ordering.
Offset rules: Capital losses first offset capital gains. If capital losses exceed capital gains, up to $3,000 ($1,500 if married filing separately) can be applied against ordinary income each year. Remaining unused capital losses may be carried forward indefinitely to offset future capital gains and up to $3,000 of ordinary income per year.

These principles answer whether you can write off a stock that goes to zero at a high level: yes, as a capital loss, subject to these timing, holding period, and offset rules.

Forms and Reporting (Form 8949, Schedule D, 1099-B)

How do you report a worthless-security loss on your U.S. tax return? Typical steps:

Form 8949: This form lists individual sales and dispositions of capital assets. For a worthless security you may report a disposition with $0 proceeds and your basis equal to your adjusted cost basis. Use the appropriate code in column (f) when the broker does not issue a 1099-B for the transaction (often code W for a worthless security when allowed).
Schedule D: Summarizes totals from Form 8949 and calculates net capital gain or loss to carry to Form 1040.
Form 1099-B: Brokers normally issue 1099-Bs for sales. If the broker does not issue a 1099-B because the security was not sold through the broker (for example, because the security was delisted or a company liquidated without a broker trade), you must still report the loss on Form 8949 and Schedule D. Enter $0 proceeds and show the basis; attach an explanation if required.

When brokers do not show a transaction or issue a 1099-B for worthlessness, it's common to enter a $0 proceeds sale on Form 8949 and attach supporting documentation showing the security became worthless.

Abandonment and Alternative Methods to Establish Worthlessness

The IRS recognizes more than one way to treat a security as disposed of. Abandonment is an option when you permanently surrender rights to the security without receiving consideration. To claim abandonment:

You must give up all rights to the stock.
There must be no expectation of any future value or distribution.
Document the abandonment in writing and keep copies of any confirmation or correspondence.

Other practical approaches investors use when a stock is delisted or unsellable include:

Broker-assisted removals or nominal buyback: Some brokerages will remove delisted shares from your account or buy them back for a nominal amount, producing a sale statement that can be reported.
Formal abandonment to a company or trustee if allowed under plan documents.
Demonstrating worthlessness with company filings (bankruptcy petitions, liquidation reports, final balance-sheet zeroing, or court records showing liquidation distributions of zero). These documents can show that the stock is valueless and justify treating the loss as a taxable disposition.

Documenting the method you used to establish worthlessness and retaining records is essential for audit protection.

Limitations and Special Rules

There are important limitations and special rules to consider when answering "can you write off a stock that goes to zero." These rules determine whether your deductible loss will be allowed and in what tax year.

Wash Sale Rule

The wash sale rule disallows a deduction if you purchase substantially identical stock within 30 days before or after a loss-sale. Key points related to worthless securities:

If you claim a loss by selling or abandoning shares and you buy substantially identical shares within the 30-day window before or after, the loss may be disallowed under the wash sale rule.
If a security is delisted or becomes non-tradable and you later acquire substantially identical stock (for example, in a reverse split or replacement instrument), watch for wash-sale interactions.
For the question can you write off a stock that goes to zero, the wash sale rule can block the deduction if repurchases occur in the disallowed window.

Basis Determination and Substantiation

Adjusted basis is usually the purchase price plus brokerage fees, adjusted for stock splits, wash-sale adjustments, return of capital, or other corporate actions. When claiming a worthlessness deduction, the IRS expects documentation to substantiate your basis and the timing of worthlessness. Useful records include:

Trade confirmations and brokerage statements showing purchase price and fees.
Account statements showing the position and any subsequent removal or buyback.
Company filings such as bankruptcy petitions, liquidation notices, Form 10-K/10-Q footnotes, or plan of liquidation disclosing no remaining equity value.
Communications from the broker or transfer agent confirming delisting or removal.
Court records, trustee filings, or other legal documents showing the company is in liquidation with no distributions to common shareholders.

Without adequate records, the IRS may challenge your basis or the claim that the security was worthless during the tax year.

Limit on Deduction and Carryforward Rules

Recall the annual ordinary income offset limit: individual taxpayers may deduct up to $3,000 of net capital losses against ordinary income per year ($1,500 if married filing separately). The rest carries forward indefinitely. The ordering rules for offsetting gains and losses also matter: net short-term losses offset short-term gains first, and net long-term losses offset long-term gains first; if one category runs out, the other is used next.

These rules are central to whether and how much you can benefit in the current tax year by writing off a stock that goes to zero.

Special Categories and Exceptions

Certain special rules can change treatment, potentially allowing ordinary loss treatment or changing substantiation requirements.

Small Business Stock — Section 1244 (U.S.)

Section 1244 can allow ordinary loss treatment (subject to limits) for losses on qualifying small business stock (QSBS) issued by a domestic small business corporation. Ordinary loss treatment can be more favorable because it offsets ordinary income rather than being limited by capital loss rules.

To use Section 1244:

The stock must meet specific eligibility at issuance (issuer type, amount raised, and active business tests).
Only the original purchaser of Section 1244 stock can take that treatment for the portion that qualifies.
There are annual limits on how much ordinary loss can be claimed ($50,000 per year or $100,000 jointly in most cases).

If you ask "can you write off a stock that goes to zero" and the stock qualifies as Section 1244 stock, ordinary loss treatment may be available instead of a capital loss — check eligibility carefully.

Business Investment Loss / Bad Debt Distinctions

Business investment losses (BIL) and bad-debt deductions operate differently from capital-loss treatment. BILs are a category of loss for non-corporate taxpayers that arises when an investment in a business becomes partly or wholly worthless and certain other conditions are met. Bad-debt deductions apply to loans and receivables rather than stock, and are often ordinary deductions when the debt was business-related.

For common stock: the typical route is capital-loss treatment or Section 1244 (if available). Ordinary bad-debt deductions generally don’t apply to purchased stock.

Tax-Advantaged Accounts (IRAs, 401(k)s)

Stocks held inside tax-advantaged retirement accounts (IRAs, 401(k)s) do not produce deductible capital losses on your personal tax return. A stock that goes to zero inside an IRA simply reduces the IRA’s value. The loss is reflected in the account balance but is not separately deductible on Form 1040. This is a crucial practical limitation when considering whether you can write off a stock that goes to zero.

What to Do When Your Broker Doesn’t Issue Forms or the Stock Is Non‑tradable

Many investors face situations where the broker did not issue a 1099-B for a worthless or delisted security. Recommended steps:

Confirm the security’s status: obtain company filings, delisting notices, trustee reports, or other evidence that the security is worthless.
Try broker remedies: contact your brokerage and ask whether they will remove delisted shares, buy them for a nominal amount, or otherwise provide confirmation of disposition. Bitget users can consult the Bitget support and Bitget Wallet records to retrieve historical trade confirmations and account statements.
Report the loss on Form 8949 and Schedule D: enter $0 proceeds, list your basis, and use the correct code. If necessary, attach a written explanation to your return explaining the absence of a 1099-B and the basis for worthlessness.
Keep detailed documentation: store copies of statements, bankruptcy filings, correspondence, and any trustee or court records that prove worthlessness.
Consult a tax preparer if uncertain: complex cases (cross-border issues, bankruptcies with partial recoveries, or related-party transactions) may need professional advice.

If you later receive a 1099-B or other information that changes the reporting, you may need to file an amended return.

Examples and Common Scenarios

Below are concise examples demonstrating common fact patterns and how the rules apply.

Example 1 — Bankruptcy liquidation: Company A files for Chapter 7 liquidation in May and later court documents show no distribution to common shareholders. The investor's shares are worthless in that tax year. The investor may treat the shares as worthless and report a capital loss with a deemed disposition date of December 31 of the year the worthlessness occurred.
Example 2 — Delisted but not formally liquidated: Company B is delisted and shares are not tradable, but no formal liquidation occurred. The investor must assemble evidence demonstrating lack of marketability and absence of value (management statements, no assets, ceasing operations). The IRS may challenge a claim if the evidence is weak.
Example 3 — Broker nominal buyback: Broker C agrees to remove delisted shares and records a nominal sale with proceeds of $0.01, creating a sale transaction on the brokerage platform and producing a 1099-B. The investor uses that 1099-B to report the realized loss.
Example 4 — Security later recovers value: Investor claimed a deduction when shares were treated as worthless for tax year X. In year Y the claim unexpectedly recovers value (for example a litigation settlement or settlement of company claims). The amount recovered is taxable to the extent of the prior deduction, and may be treated as capital gain (or ordinary income in limited circumstances) depending on the facts. Keep in mind the tax effect of later recovery: you may have to report income in the year of recovery.

These examples show how different fact patterns affect whether and how you can write off a stock that goes to zero.

Applicability to Cryptocurrencies and Tokens

The IRS treats most cryptocurrencies as property for U.S. federal tax purposes. Many of the same capital-loss principles apply, but establishing that a token or coin is "worthless" can be more complex:

Disposition requirement: Generally, a capital loss requires a disposition (sale, exchange, or abandonment). Proving an on-chain token is worthless can be difficult because tokens can persist on blockchain ledgers and may regain value.
Abandonment: Abandonment of crypto to claim worthlessness is possible but needs clear, documented relinquishment of control and expectation of no future value.
Wallet loss or keys lost: Loss of wallet access does not always permit an immediate deduction for worthlessness; instead it may be a loss of property, and specific rules for personal property loss apply. Recent tax guidance emphasizes documentation.
Exchange and trading complications: Many crypto transactions occur on exchanges without 1099-B. Reporting still required.

So when investors ask "can you write off a stock that goes to zero" and want to apply the same idea to cryptocurrencies, the answer is: similarly possible but with additional evidentiary and technical complications. Maintain chain-of-custody records, export exchange or wallet transaction histories (Bitget Wallet provides export tools), and consult guidance specific to crypto taxation.

Jurisdictional Differences (Brief)

Tax systems outside the U.S. use different rules. For example, Canadian rules use concepts like allowable business investment losses (ABIL) and have different filing elections for worthless securities. European, Australian, and other tax regimes each have unique timing, basis, and loss-utilization rules.

If you are not a U.S. taxpayer, the treatment of a stock that goes to zero will depend on local law; always verify your local rules or consult a tax professional in your jurisdiction.

Documentation, Evidence, and Audit Considerations

Because worthless-security claims can attract IRS attention, keep robust records. Essential documents include:

Purchase confirmations and trade history showing basis and fees.
Brokerage account statements showing the position and any removal or settlement; Bitget users should export statements and keep transaction logs from Bitget Wallet.
Company filings: bankruptcy petitions, schedules, trustee distribution reports, liquidation plans, and finalization documents proving no distribution to common shareholders.
Delisting notices from exchanges or the company's transfer agent.
Correspondence with the broker or transfer agent confirming the security's status and any attempts to sell or remove.
Independent valuations or professional opinions if the facts are complex.

A clear timeline tying events to the tax year in question strengthens your position if audited.

Practical Steps and Best Practices

Checklist — what to do if you believe you can write off a stock that goes to zero:

Confirm worthlessness with documentary evidence (bankruptcy filings, liquidation notices, trustee reports, delisting notices).
Gather purchase records and calculate adjusted basis (include fees, adjustments for corporate actions).
Contact your broker to ask for help: removal, nominal buyback, or issuance of tax reporting statements. Bitget users can retrieve historical trades and account statements via Bitget support and Bitget Wallet exports.
Consider abandonment if a sale is infeasible: document the abandonment and file accordingly.
Report the loss on Form 8949 and Schedule D (or applicable local forms), entering $0 proceeds where appropriate and using the correct codes; attach a written explanation if your broker issued no 1099-B.
Verify wash-sale exposure and avoid repurchasing substantially identical stock within 30 days of the deemed disposition.
Consider whether Section 1244 or other special rules apply.
Retain all documentation for at least the IRS audit period (generally three years, longer if fraud or omitted income is involved).
If the security later recovers value, be prepared to report the recovery in the year it is recognized.
When in doubt, consult a qualified tax professional.

These steps help ensure that when you ask "can you write off a stock that goes to zero," you have followed the necessary procedures to claim the deduction properly.

Aftermath — Recovery, Claims, and Carryforwards

If a previously worthless security later yields value (for example due to litigation, a settlement, or a successful reorganization), the tax consequences typically require you to recognize income to the extent of the prior deduction. The exact character (capital gain vs. ordinary income) depends on the original treatment and the recovery facts. Keep records and consult a tax advisor if recoveries occur.

If you cannot use all capital losses in the year claimed, track carryforwards carefully. Use future capital gains and up to $3,000 per year of ordinary income offset until losses are exhausted. Tax software and Bitget record exports can help track carryforwards and integrate with tax preparation.

If worthlessness is discovered after you filed returns, you may be able to amend prior-year returns to claim the loss for the proper tax year. Amending returns has its own statute-of-limitations rules, so act promptly when you discover a missed deduction.

Frequently Asked Questions (FAQ)

Q: Do I need a 1099-B to claim the loss? A: No. You can claim a loss even if you did not receive a 1099-B, but you must still report the disposition on Form 8949 and Schedule D and retain documentation to substantiate the worthlessness and your basis.

Q: Can I write off worthless crypto the same way I write off a stock that goes to zero? A: Similar principles apply because the IRS treats crypto as property, but demonstrating worthlessness for crypto can be more complex. Abandonment, wallet loss, or exchange insolvency each have different evidentiary challenges.

Q: What if I sold to a related party? A: Sales to related parties have special rules and may be disallowed or treated differently for loss recognition. Be cautious and consult guidance.

Q: How long do I have to claim a worthless security? A: The loss is claimed for the year the security became worthless. If you discover worthlessness after filing, you may be able to amend prior returns within the general statute of limitations (usually three years) or as otherwise allowed.

Q: Does the wash sale rule apply if the stock went to zero? A: The wash sale rule can still apply if you repurchased substantially identical stock within 30 days before or after the deemed disposition. Exercise care with timing.

Q: Can Section 1244 let me treat a worthless small-business stock as an ordinary loss? A: Possibly, if the stock qualifies and you meet the criteria. Section 1244 has eligibility limits and documentation requirements.

Q: Can I claim losses for securities held inside IRAs? A: No. Losses inside tax-advantaged retirement accounts generally are not deductible on your personal return.

References and Sources

As of 2024-06-30, IRS guidance (Form 8949 and Schedule D) and mainstream investor resources describe treatment of worthless securities and the deemed disposition date at year-end. Check current IRS publications and official guidance for the latest rules.
Sources referenced for explanatory material include investor-education sites and broker guidance (Bankrate, Investopedia, TurboTax community guidance) and professional tax commentary. Always verify specifics against current primary law and official IRS resources.

Further notes: when using this article, remember that tax laws and interpretations can change — confirm current law before filing.

Practical wrap-up and next steps

If you still wonder "can you write off a stock that goes to zero," the short answer is yes — typically as a capital loss — but only when the security is demonstrably worthless or otherwise disposed of under IRS-accepted methods. Gather documentary proof, confirm your basis, watch for wash-sale issues, and report the loss on Form 8949 and Schedule D. If your account or trading records are on Bitget or in a Bitget Wallet, export transaction histories and statements now to build your file.

Want help organizing records or exporting transaction history? Explore Bitget features and Bitget Wallet export tools to create audit-ready reports and keep your investment records clear and accessible. For complicated tax situations (bankruptcies, cross-border holdings, or recoveries), consult a qualified tax professional.

Thank you for reading — explore Bitget’s tools to help you manage positions and preserve documentation for tax time.

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