re: Bankrupt stock- tax implications

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.