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Subject:   Question on Writing off ISO Purchase
Date:   Sun, 09 Apr 2006
From:   Matt

Hi Michael,

I purchased all of the shares allocated to me by company X during 2000. I paid off the loan to pay for the shares, and have since moved to another company.

The company was still privately held during 2005. I would like to write off the loss on the ISO shares to offset capital gains on my 2005 income tax returns.

X was sold during 2006. I know what the loss per share will be.

Can I deduct the loss on my 2005 income tax returns?

Thanks in Advance,
Matt

Answer

Date:   Wed, 14 Jun 2006

Hello Matt,

The only way you could deduct the loss on the shares without selling them is to establish that the shares were worthless during 2005. Since the company was sold during 2006, it sounds like the shares weren't worthless during 2005, so you can't take the loss without selling the shares.

Good luck!

Mike Gray

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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.