Question

Which of the following statements most accurately describes the tax treatment of worthless securities? A. The transaction is considered to be a noncapital loss. B. The taxpayer can claim the loss in any year including or following the date on which she can demonstrate that the security became worthless. C. A worthless security is deemed to be disposed of on the last day of the taxable year.

Answer 1

The most accurate statement regarding the tax treatment of worthless securities is:

B. The taxpayer can claim the loss in any year including or following the date on which she can demonstrate that the security became worthless.

When a security becomes worthless, the taxpayer can claim a loss for tax purposes. This loss is typically treated as a capital loss. The taxpayer has the flexibility to claim the loss in the tax year when the security became worthless or in any subsequent year. This allows the taxpayer to choose the most advantageous timing for tax purposes.