question for stock guru

[igneousy2]

It all depends on the reorginization plan that is approved by the BK judge. NOT ALL BK's result in the reissue of new stock. If there is enough money to pay off senior creditors without issuing new stock it will be done.

On June 9, 2003 Hawaiian Airlines traded at .29 cents a share. You could have picked up 34,400 shares for $10,000 including the commission. Nobody bought because stocks are ALWAYS worthless after BK. On September 6, 2004 Hawaiian Airlines traded at $8.75 per share. Your $10,000 investment would now be worth over $300,000 in a little more than a year.

Now let's talk about the stocks talked about here...you bought $10,000 the first time US Air went BK...you lost $10,000, the 2nd time $10,000, now $20,000, you bought UAL $10,000 total of $30,000 so far...now you buy Hawaiian and it hits..you are up $270,000.

Of course it's risky...but the up side is HUGE...the stocks are trading because people are taking calculated risks and hoping for a huge upside. I thought about Hawaiian...could of, would of, should of.

Later

 

[Traderd]

Oh jeez. I bet you read tea leaves, too.

No tea leaves here, not even Tarot cards. Thought about calling Ms. Cleo but she is no longer in business.

 

[Benhuntn]

Sorry to burst your bubble but you need a new accountant. If your stock is worth zero. You can not write it off unless your broker will give you a worthless stock repurchase. So there is no 3000.00 a yr write off. Look at the tax laws again my friend. You must sell the stock at a price and a loss then you can write it off. If it goes to zero and can't be sold, you have no loss and no write-off.

 

[Traderd]

Sorry to burst your bubble but you need a new accountant. If your stock is worth zero. You can not write it off unless your broker will give you a worthless stock repurchase. So there is no 3000.00 a yr write off. Look at the tax laws again my friend. You must sell the stock at a price and a loss then you can write it off. If it goes to zero and can't be sold, you have no loss and no write-off.

Are you sure? As I read Pub 17, Part 14, page 94 - Worthless Securities, the IRS appears to allow the loss to be included on your Schedule D.

Worthless Securities. Stock, stock rights and bonds (other than those held for sale by a securities dealer) that become worthless during the tax year are treated as though they were sold on the last day of the tax year. This affects whether your capital loss is long term or short term. See Holdings Period, later.

In addition, Pub 17 states:

How to report loss. Report worthless securities on Schedule D (1040), line 1 or line 8, whichever applies. In column (c) and (d) enter "Worthless" . Enter the amount of your loss in parentheses in column (f).

It is my understanding that the only real issue is that you must be able to prove the security to be worthless if challenged (read audited) That the security is delisted or the underlying entity is bankrupt is not considered sufficient by the IRS. A cessation of operations and liquidation where 100% of assets have been distributed to creditors seems to be the test.

So it looks like a security that is worthless qualifies for a total write off in the year it became worthless (the treated as though they were sold comment). Sound right?

What is your source regarding the requirement for the worthless stock repurchase?

 

[Benhuntn]

So we are both correct. Most companies never quite make it to zero. I will give you an example that you can look at for yourself. Adair intl. oil and gas. Symbol "aigie" has been bkc for 5 yrs, the company does not exist. Yet it shows a value of .02. Try and buy it for that. You can't it is not traded anymore. I sold that stock to my broker as worthless so I could unload it and then claim the loss. But it still shows a value. If it had been zero I couldn't have sold it and could not have gotten the loss. I think we are both right you more than me.

 

[Traderd]

So we are both correct. Most companies never quite make it to zero. I will give you an example that you can look at for yourself. Adair intl. oil and gas. Symbol "aigie" has been bkc for 5 yrs, the company does not exist. Yet it shows a value of .02. Try and buy it for that. You can't it is not traded anymore. I sold that stock to my broker as worthless so I could unload it and then claim the loss. But it still shows a value. If it had been zero I couldn't have sold it and could not have gotten the loss. I think we are both right you more than me.

It is a mess for shareholders left holding the bag. I have seen letters from a BK court to a shareholder declaring the security worthless so that makes it simple. In your example the shareholder might spend more to resolve the issue than they might realize in a loss offset. I don't hold overnight much less into BK so I have been fortunate and avoided the problem.

By the way, for all my years in the Army, yours is the profile I most envied. Had I better mentors as a young man, where you were is where I would have been. Hopefully I would still be exactly where I am today but I definitely had the green eyed monster for the AF way of life. Congrats on a great career.