Need opinions on Capital Loss

[GradyFinance]

I have a client near retirement age who had a sizable investment (subordinated debenture bond) in a local financial institute that filed bankruptcy 2 years ago. Since the bonds were subordinated, they are essentially unsecured to the extent of the liquidity of the company. Since the bankruptcy filing, the bonds are basically considered worthless. The assets of the company have been sold to satisfy the secured debt of the company. No one knows what, if anything,the bankruptcy court will ever allow or pay to the investors.

Should the loss be claimed for this tax year (when they will get the most tax benefit from it) and if the client ever receives anything from the court, claim it as gains in the year received? Or should they wait until the case is dismissed before claiming anything?

[FEDUKE404]

Does not appear finalized yet

I think you have answered your own question: "basically considered worthless"

While your client certainly has a substantial decline in value, it appears he has not yet established a loss. Selling the bonds would do that, and/or once the company was delisted (or more commonly "there is no market for...") that would also establish the loss.

You certainly cannot "pick" a year. Read up on the rules for when an investment asset can legitimately be deemed worthless.

FE

[AZ-Tax]

Agree with FE

Make sure you have a document(s) supporting the taxpayers cost basis. I deducted quite a few of these (worthless securities) over the years for clients and so far no letter from IRS.