Can I transfer a stock to my spouse to realize losses?

[leighb]

Here's the situation:

I inherited a crazy portfolio of penny stocks. I've done my best to move them into index funds. But some were too difficult to get rid of so I held them.

Anyway, one recently went up 3000% resulting in huge capital gains. And another has become delisted. While the delisted stock is not worthless it can't be traded normally. Which brings me to my question/idea. I want to transfer or sell the delisted stock to my husband. This is so I can offset the capital gains with those losses.

So far I know I can transfer the stock to him. But what I don't know is if I can actually claim the losses with that transfer.

Thanks!

[leighb]

The more I look into this the more I wonder about wash sale rules.

What's a person to do with a security that's not trading. It's not worth 0 but has losses that would really be helpful right now.

[secondcor521]

Your broker should be willing and able to take it off your hands for you, which will create the realized capital loss for you to take on your taxes.

[Cpa Cat]

You can't recognize a loss on a related party transaction, so no, you can't transfer it to your spouse to claim the loss.

You can abandon the stock by "selling" it to your brokerage firm. You'd contact them for that.

[leighb]

I'm aware that I can give it to my broker for $0. But that's really a shame, because it's not worth $0.

Can I transfer it to someone who is not a related party. I'm thinking about a non-profit or a friend. Assuming it emerges from litigation at some point, I would much rather have a friend of mine or a non-profit reap the rewards than my broker.

[Cpa Cat]

You can't claim a loss if you donate it to a non profit. The value of your donation is the fair market value in that case.

You can sell it to a friend. But you can't gift it to a friend. If you gift it to a friend, you can't recognize a loss.

[EricEng]

You say it's not worth 0 and don't want to trash it to brokerage.  If you think it actually has value you'll need to use an "over the counter" market. https://www.otcmarkets.com/
Trash to your broker or sell over the counter is only way you'll get your loss.

https://www.investopedia.com/ask/answers/buy-over-the-counter-stock/

[leighb]

Thanks

[leighb]

So.... I've learned a few things and I still have a few questions. Because the stock is suspended (different than delisted) it is not tradable on any exchange. I am looking into moving the stock to a transfer agent so that I can sell it. But have to first figure out if I can sell a stock that has been suspended.

[EricEng]

Suspension lasts up to and normally 10 days.  After which it is off even "Over the Counter" Market.  It is moved to the "grey market".  Suspension happens due to fraud or tax default.  Expect it to be 20%-40% of the original value before suspension.

https://otcmarketresearch.com/the-sec-just-suspended-my-stock-now-what/

Of those 3,308 stocks that were suspended, I know of only 7 that have managed to claw their way back to resume trading normally again:

Any equity you had in that is likely gone and I'd suggest trashing it through your broker.

[leighb]

Normally I would agree, but this situation is a little different. The reason it stopped filing was because it was a royalty trust and the operator (not the trust) went bankrupt which stopped it's distributions. The trust's funds were set aside in an escrow account and have been tangled in legal proceedings. I do expect to get about 30 cents on the dollar when it finally works its way through the court. I do not ever expect it to trade normally again.

[leighb]

Follow-up: I called the right transfer agent. It took me a awhile to learn that not any transfer agent will do. I needed to work with the one for this security. The basic steps are get the shares converted into certificates out of Ameritrade. Apparently, all I need to do it send them a letter asking for this to happen. They'll send the shares to the transfer agent who can assign them to another party(non-related). There is a cost of about $500 to get the shares converted.

[EricEng]

Follow-up: I called the right transfer agent. It took me a awhile to learn that not any transfer agent will do. I needed to work with the one for this security. The basic steps are get the shares converted into certificates out of Ameritrade. Apparently, all I need to do it send them a letter asking for this to happen. They'll send the shares to the transfer agent who can assign them to another party(non-related). There is a cost of about $500 to get the shares converted.

That must be a very large position in penny stocks to justify the time and another $500 to try and get them out.

[leighb]

Yep. 90% of my father's net worth was tied up in penny stocks.