How to report Loss- Stocks Bought in Dec 2006, sold in Feb 2007..

pruthik_21 · #1 (**permalink**) 02-04-2008, 11:06 PM

Hi Folks,

I was preparing my tax return online on HRBlock. But i am confused on 1 thing. I bought stocks of a company in Dec 2006 and sold them in loss in Feb 2007. The 1099B form I received from my broker bank ETrade list all 2007 transactions. It doesnt list stocks of company I bought in Dec 2006 but do list the same stock I sold in big loss in Feb 2007. Is that not consider as loss incurred in 2007. If yes, how do i list that in my returns..

Sorry a dumb question but How to tell IRS in tax return that i incurred this loss.
Please reply

Thanks
Karan

TaxGuru · #2 (**permalink**) 02-05-2008, 10:40 AM

The key issue here is the difference between recognized loss and realized loss. The recognized loss is the loss that was utlimately made when you sold your stock for a loss.

The 1099 Misc from the Brokerage Firm reports the stock transactions that resulted in either a recognized loss or a gain. These are the reported transactions that are reported to the IRS. In other words, these transactions are ones where the stock position has been closed, either you did a short sale and covered your open position or simply sold the stock that you had bought. All of these transactions are considered as reportable transactions.

However, stocks that you bought in 2006 but did not sell in 2007 are considered open positions and are not reportable transactions. Hence, the Brokerage House is not required to report these on the Yearly 1099 Misc Report.

So, your so called unrealized losses are not recognized until you phyiscally sold your position. The IRS will not accept these losses because the taxpayer has maintained an open position.

When in fact, you do sell your position in the near future, at that time you may claim your losses assuming the stock has not rebounded by then.

pruthik_21 · #3 (**permalink**) 02-05-2008, 12:14 PM

You said "However, stocks that you bought in 2006 but did not sell in 2007 are considered open positions and are not reportable transactions. "

What I am saying is that I sold stock in 2007 which i bought in 2006.
Can't I put that in loss for tax filing of 2007?

Quote:

Originally Posted by TaxGuru

The key issue here is the difference between recognized loss and realized loss. The recognized loss is the loss that was utlimately made when you sold your stock for a loss.

The 1099 Misc from the Brokerage Firm reports the stock transactions that resulted in either a recognized loss or a gain. These are the reported transactions that are reported to the IRS. In other words, these transactions are ones where the stock position has been closed, either you did a short sale and covered your open position or simply sold the stock that you had bought. All of these transactions are considered as reportable transactions.

However, stocks that you bought in 2006 but did not sell in 2007 are considered open positions and are not reportable transactions. Hence, the Brokerage House is not required to report these on the Yearly 1099 Misc Report.

So, your so called unrealized losses are not recognized until you phyiscally sold your position. The IRS will not accept these losses because the taxpayer has maintained an open position.

When in fact, you do sell your position in the near future, at that time you may claim your losses assuming the stock has not rebounded by then.

TaxGuru · #4 (**permalink**) 02-05-2008, 04:49 PM

If you sold the stock then clearly it is a closed position and that makes it a reportable transaction. You must report this stock trade in Schedule D of your Individual Tax Return.

Therefore, you can take the loss on this stock trade when filing your 2007 Tax return.