Question

A stock that becomes worthless during the year is considered worthless as of which date

		Last day of previous year
		Last day of current year
		The date is officially deemed worthless
		First day of the current year

Answer 1

The correct answer is Option #2: Last day of current Year (in which the stock becomes worthless)

Provisions regarding deducting losses on worthless investment securities are found in Sec. 165(g) which permits a loss deduction for a security that becomes worthless during the tax year, but only if the security is a capital asset in the taxpayer’s hands.

The loss amount is determined by treating it as having resulted from a hypothetical sale or exchange of the security on the last day of the tax year in which the security becomes worthless.