Q&A: Bought too many shares, lost money
Question: Several years ago I opened a discount brokerage account and bought some shares. I only intended to purchase a small number – 200 shares – but while filling out the form online an extra zero was added and I ended up buying 2,000 shares instead. I didn’t have the money and had to borrow money through my credit line.
Long story short, I still have those shares, however, they are now worthless. I feel stupid for holding on to them. My question is whether I can claim the interest paid on my credit line for the money I borrowed to purchase the shares. I still have a large outstanding amount on my credit line and still pay monthly interest because of it.
Now I want to sell all 2,000 shares. How do I claim this on my income tax as a capital loss? Can I claim a capital loss if I were to sell them now when I file my income tax in March? Is this procedure so complicated that I need a tax preparer or an accountant to do my income tax?
I also have other shares on which I have to declare a capital gain (this will not offset my capital loss). Is it true that I can offset the capital loss against the capital gains indefinitely until all the capital loss is covered? – L.T.
Gordon Pape answers: Too bad you didn’t notify the brokerage firm immediately of the purchase error. They might have been able to correct it. However, that’s now ancient history so let’s deal with your questions.
Yes, the interest on the loan is tax deductible, assuming that the money was used exclusively for investing. In fact, you can go back and claim for previous years as well. See the General Tax Guide for details on how to make changes to a previously-filed return. You can go back as far as 10 years.
Claiming a capital loss on your return is not complicated and you do not need an accountant. Buy a tax preparation software program, enter the numbers, and it will do the calculations for you.
However, if you sell the shares now you cannot claim the loss until you file your 2008 tax return. That won’t be until spring 2009. So you cannot use the loss this year to offset your capital gains. The good news is that you can retroactively apply any capital losses to the three previous tax years. Losses can also be carried forward indefinitely.
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