Auckland, New Zealand (PressExposure) January 05, 2010 -- Sometimes investors purchase low value stock in the hopes of making a lot of money when the stock prices rise. Unfortunately, this sort of investment can result in being stuck with worthless stock. In the event that a stock becomes totally worthless in the market, there is still an opportunity for the investor to offset losses.
Worthless stock, for income tax purposes, must be stock from a company that has been liquidated or is no longer trading on the stock market. Stock that retains a value, even if it is just pennies, will not qualify as worthless stock to the Internal Revenue Service. Under certain circumstances, brokers buy back stock from investors and close the transaction. This is a prime opportunity for the investor to claim the worthless stock as a deduction and gain a tax benefit from the loss.
Another option for claiming worthless stock is for the investor to sell the stock back to the broker at a price lower than the brokerage charges; this can safely be reported as worthless stock. An investor may also sell the stock to a relative, (other than a spouse or a sibling) or friend. The transaction might only be in pennies, but the investor signs the stock over to the purchaser and writes off the worthless stock as a tax benefit.