Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



Make the Most of Worthless Stock

Watch stocks you care about

The single, easiest way to keep track of all the stocks that matter...

Your own personalized stock watchlist!

It's a 100% FREE Motley Fool service...

Click Here Now

At some point, you've probably bought into a promising stock, only to watch it go belly-up. But if you give up and do nothing after your ill-fated holding bites the dust, you could be making a big mistake.

Those worthless shares aren't as worthless as you think. They represent a capital loss, which you can use to offset some of your capital gains on your tax return. If you sold one stock for a $4,000 loss, but reaped a $6,000 gain when selling another, you'll only have to pay taxes on $2,000 of that windfall.

If your worthless company was actually liquidated, you'll face a simple process. Typically, you'll receive a 1099-DIV form at year-end showing a liquidating distribution. Treat this as if you sold the stock for the amount of the distribution. The date of "sale" is the date that the distribution took place. Using your original cost basis in the shares, you can now compute your loss.

Your Uncle Fred could use some new kindling
If the company hasn't actually been liquidated, though, things get a little more complicated. You'll need to make sure your shares are totally worthless before claiming a loss. If so, you can sell the shares through your brokerage -- but sometimes that can be difficult or  expensive. After all, would you want to pay a commission to sell stocks worth $0?

Alternatively, your brokerage might buy the shares from you for a penny. If not, you can sell them to a friend (or cousin, aunt or uncle) for pennies. (Warning: Per tax rules, selling them to a spouse, siblings, parents, grandparents, or lineal descendants won't work.) Here's one way to do it:

  1. Get the actual stock certificates from your broker.
  2. Formally sell the shares to the purchaser, with a check for payment and a bill of sale.
  3. Sign over the stock certificate (on its back) to the purchaser. Have the signatures verified by your banker and/or a local stockbroker.
  4. Send the certificate to the stock transfer agent. Explain that the shares have been sold, and ask them to cancel the old shares and issue a new certificate to the new owner.

By selling the shares, you have a closed transaction with the stock, and you can declare a tax loss. Your friend, relative, or broker -- for a pittance -- has just bought a placemat or a birdcage liner.

Last but not least, you can frame a certificate for worthless shares and hang it in your office, as a reminder to pay more attention to your holdings.

Be proactive
The best way to deal with worthless shares is never to have them in the first place. Keep an eye on swooning shares in your portfolio, and sell any you no longer believe in. Even if they never go out of business, some companies may still cause you grief -- perhaps just by being good, but overvalued, stocks.

Motley Fool CAPS can help you spot a stock's early warning signs. I've rounded up a handful of stocks that have earned our community's poorest one-star rating, a sign of CAPS members' belief that these stocks won't do well relative to the market:


Market Cap

% of All-Star Members Who Are Bearish

Simon Property Group (NYSE: SPG  )

$20.0 billion


Capital One Financial (NYSE: COF  )

$16.7 billion


CIT Group (NYSE: CIT  )

$13.1 billion

50% (Nasdaq: PCLN  )

$9.0 billion


Continental Airlines (NYSE: CAL  )

$2.7 billion


Abercrombie & Fitch (NYSE: ANF  )

$2.7 billion



$1.0 billion


Data: Motley Fool CAPS.

Do you have a worthless stock story to share? A dumbest investment you'd like to tell us about? Talk to us! Leave a comment below, and tell your fellow investors what mistakes to avoid.

Get more tax tips in The Motley Fool's Tax Center.

Longtime Fool contributor Selena Maranjian does not own shares of any companies mentioned in this article. is a Motley Fool Stock Advisor selection. The Fool has a bear put spread on Abercrombie & Fitch. Try any of our investing newsletters free for 30 days. The Motley Fool is Fools writing for Fools.

Read/Post Comments (0) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1092470, ~/Articles/ArticleHandler.aspx, 10/22/2016 3:56:55 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 18 hours ago Sponsored by:
DOW 18,145.71 -16.64 -0.09%
S&P 500 2,141.16 -0.18 -0.01%
NASD 5,257.40 15.57 0.30%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/21/2016 4:03 PM
ANF $15.75 Up +0.01 +0.06%
Abercrombie and Fi… CAPS Rating: *
CAL.DL2 $0.00 Down +0.00 +0.00%
Continental Airlin… CAPS Rating: *
CIT $35.91 Down -0.25 -0.69%
CIT Group CAPS Rating: ***
COF $74.89 Up +0.38 +0.51%
Capital One Financ… CAPS Rating: ***
MBI $8.09 Up +0.08 +1.00%
MBIA CAPS Rating: **
PCLN $1467.39 Down -0.90 -0.06%
Priceline Group CAPS Rating: ****
SPG $196.55 Down -0.71 -0.36%
Simon Property Gro… CAPS Rating: **