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Date:   Fri, 10 Jul 2009
From:   Brian

Hi Mike,

I purchased a number of ISO shares when I left my last company. It's been about 1.5 - 2 years and they have since gone through an MBO and it turns out that all common shares are now worthless, leaving me with nothing.

I view this situation as a long-term loss (more than two years after the options were granted and more than one year after the exercise).

Please confirm that I can claim the loss on the income tax return for this year.

Thanks for taking the time to read my email.
-Brian

Answer

Date:   7 Aug 2009

Hello Brian,

To claim the loss, you must establish that the shares were worthless and when they became worthless.

I suggest that you get a letter from the company or some other authoritative source confirming that the shares became worthless in 2009. With that written confirmation in hand, you can claim the loss on your 2009 Schedule D.

Remember you might have a different tax basis for the stock for regular and AMT reporting. If you can generate capital gains, this can help you recover some of your minimum tax credits.

Good luck!

Mike Gray

For more information about incentive stock options, request our free report, Incentive Stock Options - Executive Tax and Financial Planning Strategies.

IRS Circular 230 Disclosure: As required by U.S. Treasury Regulations, you are hereby advised that any written tax advice contained in this answer was not written or intended to be used (and cannot be used) by any taxpayer for the purpose of avoiding penalties that may be imposed under the U.S. Internal Revenue Code.