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re: Bankrupt stock- tax implications
Posted on 1/26/15 at 2:00 pm to LSUFanHouston
Posted on 1/26/15 at 2:00 pm to LSUFanHouston
I wasn't aware of the implications of selling this type of stock to a related party. What occurred to the father and son who had sold to each other?
Posted on 1/26/15 at 2:32 pm to Frugal
You cannot take a loss on stock (among other things) sold to a related party. The loss is basically carried over to the new owner. When the new owner sells the stock, if he has a gain, then he can use the old loss to offset his gain, but that's it.
The situation I had was pretty straight-forward. Father and son each owned 1,000 shares in a company, the shares were inherited from a third party. The basis in the shares for each of them was like $16,000. They sold each other the shares for $1 for the entire block. So they each had a loss of $15,999. They each had a basis in their new block of stock of $1.
The company eventually did, through the bankruptcy process, wipe out the stock in the following year. They received nothing in return. Therefore, each of them had a loss of $1 they deducted in that following year.
If the company had turned it around and the stock was later sold to a non-related party for say $2,000, the gain would be $1,999, but, you can use that suspended loss to offset the gain, so no gain would have been reported. At that point, any unused loss is, well, lost.
The situation I had was pretty straight-forward. Father and son each owned 1,000 shares in a company, the shares were inherited from a third party. The basis in the shares for each of them was like $16,000. They sold each other the shares for $1 for the entire block. So they each had a loss of $15,999. They each had a basis in their new block of stock of $1.
The company eventually did, through the bankruptcy process, wipe out the stock in the following year. They received nothing in return. Therefore, each of them had a loss of $1 they deducted in that following year.
If the company had turned it around and the stock was later sold to a non-related party for say $2,000, the gain would be $1,999, but, you can use that suspended loss to offset the gain, so no gain would have been reported. At that point, any unused loss is, well, lost.
This post was edited on 1/26/15 at 2:33 pm
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