Do shares going to zero because of bankruptcy show up as a loss on 1099s?
- Main Problem: The user is unsure about how bankruptcy affects their Fidelity brokerage account and whether losses will automatically show up or require manual action to realize.
- The shares of a company in bankruptcy may still be traded until legal proceedings are completed, and the ticker symbol could change to reflect this status.
- If a security is deemed worthless by IRS criteria, it can be declared as a capital loss for tax purposes, effective from the date the criteria are met.
- A Fidelity associate can assist in removing the worthless security from the user’s account once it is declared worthless.
- It’s recommended to consult a tax advisor for guidance on claiming losses and understanding their impact on the user’s specific situation.
Here’s the full thread
Took a distressed investing class at university and was curious how bankruptcy shows up in a Fidelity brokerage account. Assuming that there is no reorganization/current stock holders get wiped out, what happens to our Fidelity account? Will the loss automatically show up as a capital loss, or do we have to manually sell in order to realize the loss?
Hey @PeachGardenOath, thanks for stopping by our server. Happy to help provide you with information on your questions today.
Generally, once a company has filed for bankruptcy and the symbol is shown with the “Q” at the end, the shares may continue to be traded until the legal proceedings are completed. In addition, you may notice the security’s ticker symbol is replaced with a CUSIP number. You may be able to find more information on this process within the prospectus.
If a security is declared worthless based on the IRS requirements, it is considered to have no current value. At such time, you may be able to declare a capital loss for tax purposes. The loss would be effective as of the date that the IRS criteria is met. When this occurs, a Fidelity associate would be able to remove the worthless security from the account it is held in.
We have a great resource on Fidelity.com you can read for more on Bankruptcy and Stocks here: https://www.fidelity.com/viewpoints/active-investor/stocks-and-bankruptcy
We recommend speaking with a tax advisory on the process on claiming gains and losses, along with how it could impact your particular situation. 🟢