Since the Eastman Kodak bankruptcy announcement we have been getting many questions regarding the income tax impact of losses on Kodak stock.

In general, if your capital losses exceed your capital gains, the excess can be deducted on your tax return and used to reduce other income, such as wages, up to an annual limit of $3,000, or $1,500 if you are married filing separately. If your total net capital loss is more than the yearly limit of $3,000, you can carry over the unused part to the next year and treat it as if you incurred the loss in that next year, and continue each year until the total loss is used.

In the case of Kodak there are two scenarios that would result in your taking a capital loss. The first scenario is if you sell your shares while they are trading in the stock market. The second scenario would be if you held on to the shares and if the bankruptcy court decided to cancel the shares and declare them worthless. In the first scenario you would receive a 1099 form indicating your gross proceeds from the sale and the difference between your cost basis and the proceeds would be your capital loss. In the second scenario you are permitted to report a loss in a security equal to your tax basis in the year the security becomes completely worthless.

For many Kodak shareholders the difficult process will be calculating their cost basis as many retirees' have accumulated shares over many years.

As always, you should seek professional advice before making major financial decisions.

Joe Arena
Director of Tax & Business Services

(This article contains the current opinions of the author but not necessarily those of Brighton Securities Corp. The author's opinions are subject to change without notice. This blog post is for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities).

IRS CIRCULAR 230 NOTICE:

As required by U.S. Treasury Regulations, please be advised that any written tax advice contained in this communication was not written or intended to be used (and cannot be used) by any taxpayer for the purpose of avoiding penalties that may be imposed under the U.S. Internal Revenue Code.