what are worthless securities 
worthless securities can include stocks or bonds that are either publicly traded or privately held to declare a capital loss from worthless securities the internal revenue service irs suggests investors treat them as if they were capital assets sold or exchanged on the final day of the tax year as with other securities investors must first figure out the holding period to determine if the capital loss is short term one year or less or long term greater than one year in the case of a short term loss investors must report this on part i of schedule d investors can net short term gains and losses against one other to determine a net short term gain or loss for long term losses investors report these in part ii of schedule d again investors can net long term gains and losses against each other to determine the net long term gain or loss after the investor completes these calculations separately in parts i and ii of schedule d they can net them together for an overall result you may be able to use a worthless security in a tax strategy called tax selling where an investor sells an asset with a capital loss in order to lower or eliminate the capital gain that they realize via other investments understanding worthless securitiespublic company market value also known as market capitalization is the number of outstanding shares of a publicly traded company multiplied by the current share price for a private company valuation methods include comparable company analysis or an estimation of discounted cash flows worthless securities will have a market value of zero as noted above for a security to become worthless it not only needs to have no value but it needs to have no potential to regain value for example a company s stock might reduce in value to zero if the market fluctuates enough if the company has a chance to regain ground in the market it would not be worthless stock however if the company closed its doors after bankruptcy its stock would likely be worthless worthless stocks vs penny stocksworthless stocks have a market value of zero while penny stocks generally have market values of less than 5 however penny stocks have the potential to become worthless securities because of their small market value penny stocks typically trade outside the major market exchanges through the otc markets group and pink sheets at a relatively low price 5 or less these stocks are considered highly speculative and high risk due to their lack of liquidity large bid ask spreads small capitalizations and limited followings and disclosures some examples of penny stocks are 