When stock becomes worthless, the loss is ordinary because there is no "sale or exchange" as required for capital loss treatment.

Question

Quizplus · Accepted Answer

The loss from worthless stock is treated as a capital loss, not ordinary, because the tax code specifically allows for a capital loss deduction in the case of securities that become completely worthless, treating it as if it were sold on the last day of the tax year in which it became worthless.

When Stock Becomes Worthless, the Loss Is Ordinary Because There