The last day of a tax year in which the security is determined to be worthless is the date of realization of the loss.

The amount of the realized loss is the adjusted basis of the security.  Following the capital recovery concept, taxpayers may deduct the basis of their investments when those securities are determined to be worthless.

Generally, the recognized loss on worthless securities is a capital loss.  Therefore, if an individual has no net capital gains for the year, the loss deduction is limited to $3,000 annually.  The last day of the tax year is the date of realization for determining the holding period for classification of whether the loss is long-term, mid-term, or short-term.  If the stock is classified as small business stock, the loss from worthlessness is deductible as an ordinary loss.