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 » From: Seattle, WA Dear TaxMama: I did not record substantial stock losses in 2001 on my taxes, because I was told I could write them off in the future on stock gains. How long can you use the losses for stock gains?? Should I have written them off in 2001 and used the carryover. Or can I use them anytime in the future. Thanks for your help. Jeff Hi Jeff, You need to write them off when they become worthless. What does that mean? Well, as in all tax answers, it depends. If they've filed bankruptcy, you could use the year in which they filed OR the one when they were finally discharged. Did they shut down? That would be the year they closed their doors. OR when the WSJ reported they were going to shut down. There are some gray areas. But if the companies are gone and you haven't written off the cost of those stocks, you may need to amend the tax return for 2001 or 2002 to report the losses. Then, if you couldn't use them in those years, you'd be able to carry the losses forward and use them in future years. If the companies are still in business, or at least open and still dying, you could 'abandon' the stocks and declare them worthless in any year that you feel they are no longer worth anything. Attach a statement to the tax return for that year, explaining that you are abandoning the stock, or giving up on it. If it so happens that they recover and you either get money (a settlement) from them or are able to sell the stock in a future year, you'll take the whole thing into income. It will probably be a short-term capital gain since you no longer 'owned' it at the time they paid you off. Once you've written off stocks, what's if your losses far exceed the $3,000 you're allowed to write off this year? Don't worry. They won't go away. You'll get to carry them to next year's tax return, and the one after that and so on, until you use them up. It's really sad when someone, like my good friend Jack, has $100,000 in losses and no more money to invest in stocks that might go up. He'll have to work another 33 years to use up that loss. So, does this confuse you even more? If you are talking about small amounts, a couple of thousand dollars, it's not a big deal, no matter which way you go. If you are talking about a lot of money, do get your tax professional involved in this, OK? Best wishes, Eva Rosenberg Your TaxMama  |
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