Ask the Expert: Sell stock to claim a loss

I'm trying to sell 940 shares of Lehman Brothers stock. The transfer agent says they don't sell it anymore, and suggested I go to a broker. My broker, Charles Schwab, won't sell it for me, saying the transfer agent is responsible. The transfer agent refuses to help. How can I sell the stock and take a capital loss?

 Good news! A Charles Schwab spokeswoman says Schwab can sell it for you. If your shares aren't already in your Schwab account, you can transfer them there to be sold. Although Schwab doesn't generally accept penny stocks, she says there's a short list of exceptions. One is Lehman Brothers, currently trading over-the-counter under symbol LEHMQ for about 4 cents a share.

Unless a stock is literally worthless, you must sell it to claim a loss, says Alan E. Weiner, a Melville tax accountant. Your loss - the stock's original cost to you minus the sale price - reduces capital gains on other investments dollar for dollar. If you have no gains, it erases taxes on up to $3,000 of ordinary income.

What if your stock is no longer handled by brokers? In that case, a legitimate private sale to a friend or a relative is valid for tax purposes, Weiner says. To document it, buyer and seller must sign an agreement stating the number of shares sold, the price and the sale date, and notify the transfer agent of the sale.

The transfer agent is the bank or trust company that keeps the stock ownership records. Proper notification should include a copy of the sales agreement. Get an acknowledgment of the notification. Don't send the documentation with your tax return; keep it in case you're audited.

The bottom line. Even if a stock is worth pennies, you must sell it to claim a loss.

Website with more information. Click here to link to the IRS site on the subject at  bit.ly/fL6leR