It's not too late to pull the plug on your Circuit City stock
— -- Q: I didn't sell my shares of Circuit City last year. Can I take the capital loss on my 2009 tax return?
The once mighty seller of consumer electronics filed for bankruptcy protection Nov. 10, 2008, making it the 13th large public company to do so last year, says BankruptcyData.com.
The tax rules are clear that to claim a stock or bond is totally worthless, you must make the claim for the year in which it becomes worthless. If you don't you have to file an amended return for that year. Here's what the IRS says.
Usually, my recommendation is to sell the stock when the company files for bankruptcy, so you have a trading confirmation to back up your loss.
Even if a stock is delisted from a major stock exchange, your broker can usually sell it using a market such as the Pink Sheets. Selling the stock once the company files for bankruptcy would also allow you to include your trading commission as part of your loss. Had you used this procedure with Circuit City, you could have taken the capital loss on your 2008 taxes.
What should you do now, since you still own the stock? First, since Circuit City still trades on the Pink Sheets for about a penny a share, it's not completely worthless. Your best course of action might be to sell the stock on the Pink Sheets and claim the capital loss on your 2009 taxes, says Mark Nash, a certified public accountant for PriceWaterhouseCoopers. Again, this will let you also include your broker commissions in the capital loss.
Depending on how many shares of Circuit City you own, you will likely be able to sell your shares this way. If not, you might have a larger dilemma, and it will be up to you to prove when the stock actually became worthless. Bankruptcy can be a measure of worthlessness, but not always, Nash says. You may need copies of court documents showing liquidation of the company and prove that you received nothing.
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