DETROIT – Unable to imagine it could one day be worthless, thousands of investors, especially around Detroit, clung to their stock in General Motors.
“We didn’t think GM would go down,” said Shirley Lisk of Fenton, Mich., whose husband retired as an hourly worker for Cadillac.
Lisk said she thought the federal government would save GM – and ultimately its shareholders.
GM got a bailout all right, but its shareholders did not.
Now that the big automaker is on the mend after a quick bankruptcy, Lisk wonders whether maybe her old GM stock could end up being worth something after all.
It won’t.
“I’m very disappointed,” she said.
With tax time at hand, other investors are wondering whether they can write off their GM losses to get some sort of break on their 2009 return. They, too, might be disappointed if they didn’t take any action with the stock last year.
As investors know too well, stock in the “old” General Motors was shipped to the junkyard last year. Even the iconic GM ticker symbol has vanished.
So now that it’s tax time, holders of this worthless paper may be wondering whether they’d at least get some kind of a break on rusted-out GM stock. Short answer: No, not unless you dumped it in 2009.
“They have to sell the stock,” said George W. Smith IV, certified public accountant for George W. Smith & Co. in Southfield, Mich. Plain and simple, the Internal Revenue Service isn’t going to let you declare your GM stock worthless now and allow you to realize the losses if you’re still holding onto it.
Typically, investors wouldn’t expect to be able to take a tax loss just because a stock went down in price. Most people know you have to sell it first.
But the story with GM stock is a little more complex. Ever since GM filed for Chapter 11 bankruptcy reorganization in June, we’ve all heard warnings against buying that old GM stock because it is, well, worthless. Now, we’re told it’s not automatically so at tax time.
Early on in the GM bankruptcy, regulators explained that GM stock could be canceled. The Securities and Exchange Commission noted in an advisory relating to GM stock: “In most instances, the company’s plan of reorganization will cancel the existing equity shares.”
The old GM stock stopped trading on the New York Stock Exchange on June 1 when the automaker filed for bankruptcy restructuring. But each GM share became a share in Motors Liquidation, and those shares are still traded over the counter. Oddly, confused buyers – and speculators – sent that old GM stock soaring for a while last summer. Days after the bankruptcy filing, the old GM stock closed at $1.21 a share, up 34.5 cents or 39.88 percent in a day.
Even GM was not sure why anyone was buying it.
Over and over, investors were warned there would be no big payoff down the road.
The key point to understand: Investors who own Motors Liquidation shares will not be handed spanking new stock in the restructured GM when the company makes its initial public offering.
GM officials have said the company would like to do the IPO as soon as possible, perhaps as early as the latter part of this year. However, GM said the timing will depend on a number of factors, including conditions on Wall Street, as well as the health of the auto industry and GM’s own performance.
The new GM, which emerged after the old GM went through bankruptcy, has no publicly traded stock right now.
So, it sounds like the old GM stock is dead?
Not quite. There’s a GM afterlife.
Motors Liquidation – ticker symbol MTLQQ – continues to trade on the pink sheets market. See www.pinksheets.com. In early February, shares were around 60 cents.
Until the MTLQQ shares are sold, there is no loss to report on Schedule D of the 1040.
IRAS AND 401(K)S
“I own shares of GM – which I bought when it was $22,” said William E. Massey, senior tax analyst from the Tax & Accounting business of Thomson Reuters.
But he did not sell his 100 GM shares in 2009. And, they are in an Individual Retirement Account, so Massey would not be able to take a tax loss when those shares are sold, anyway.
GM employees might want to remember that all GM stock in their 401(k) plans was sold in 2008.
When any shares outside of a retirement account are sold, though, the loss or gain would be taken in the tax year when they’re sold – and if necessary, some of the loss would be carried forward into future years as well.
“The problem is you’ve got to sell it or attempt to sell it,” said James Jenkins, president of Jenkins & Co. in Southfield, Mich.
If you want to sell old GM stock in 2010, you can get more information on that via the Motors Liquidation Web site: www.motorsliquidation.com.
TAX TIPS IF YOU’VE SOLD STOCK
-File Form 1040 Schedule D.
-Brokerage statements can help you calculate your cost – and reduce the taxable gains on a stock once it is sold. Talk to your broker, but it is possible that your broker may not have all these records – especially if accounts were moved to different firms, said George W. Smith IV, certified public accountant at George W. Smith & Co. in Southfield.
-If you know when you bought the shares, you can get historic prices at Google Finance or www.bigcharts.com. For GM, you need to enter MTLQQ in the search box.
-Investors can research some GM stock prices at www.motorsliquidation.com – click on Investor Information. The site has a list of GM closing stock prices from May 31, 1989, through May 29, 2009. It also has a section listing common stock splits for GM, spinoffs and dividends from 1950.
-You have a capital gain if you sell the asset for more than your cost basis. You have a capital loss if you sell the asset for less than your basis. Losses from the sale of personal-use property, such as your home or car, are not deductible. But losses from the sale of a stock are deductible.
-If you hold the asset for more than one year before you sell it, your capital gain or loss is long-term. If you hold it one year or less, your capital gain or loss is short-term.
-If your capital losses exceed your capital gains, the amount of the excess loss that can be claimed is the lesser of $3,000 ($1,500 if you are married filing separately) or your total net loss as shown on line 16 of the Form 1040 Schedule D, Capital Gains and Losses.
If your net capital loss is more than this limit, you can carry the loss forward to later years. Carefully follow the Capital Loss Carryover Worksheet in Publication 550 to figure the amount carried forward.
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