Inheriting Worthless Stock


Inheriting Worthless Stock

Are you the heir to shares of a failed company? There may still be time to take a loss on stock that no longer holds value.

I understand that Enron was considered worthless in 2004. I just inherited Enron stock from my father in 2008. How do I declare it worthless? Can I still go back and declare it worthless for 2004, even though I did not own it yet? Can I declare it worthless in 2008 when I did own it?

You won't be able to deduct the loss yourself because you didn't own the stock when it became worthless. But your father's estate can file an amended return for 2004 to claim the loss. Unlike most amended returns, which must be made within three years after the tax-filing deadline, you have up to seven years to amend a return to report a worthless stock.

Because your father has died, the process does get complicated -- the amended return would probably need to be filed by the executor of the estate, with the refund coming to the estate. Whether it's worth the effort depends on how much money is involved. If it's a big loss but your father also had a big gain to offset that year, then one amended return for 2004 can do it. But if your father had no net gains to offset in 2004, then the executor may also have to file amended returns for 2005, 2006, 2007 and claim up to $3,000 in losses each time. Complicated, yes, but it could put some nice cash in your pocket.

For more information about capital gains and losses and other investing-related tax issues, see Investor Tax Tips.

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