I purchased $6,400 in Fannie Mae stock that is now worth about $100. I thought Fannie Mae was financially sound based on comments by my Congressman Barney Frank who said right before its collapse “These two entities—Fannie Mae and Freddie Mac—are not facing any kind of financial crisis." This was my mistake and one I have to deal with. What, if any deduction can I take on my tax return for this loss?
Investment property that you own is considered a capital asset. When you sell a capital asset, you incur a capital gain or loss based on the difference between the amount you received when you sold the asset and your cost basis (typically the amount you paid for the asset). In your case, once you actually sell the stock, you will have incurred a capital loss of approximately $6,300.
Assuming you sell the stock in 2009, you will be able to offset the capital loss from the Fannie Mae stock with other capital gains that you may have. If your capital losses exceed your capital gains, you can deduct up to $3,000 of capital loss in any single year. In your case, if you have no other capital gains in 2009, you will be able to take a deduction from your taxable income in 2009 for $3,000. The remaining loss of $3,300 will be carried forward to your 2010 tax return. In 2010 you will be able to use this carryforward loss to offset any capital gains and take up to a $3,000 loss.
As a side note, you should write to Barney and ask him for a government bailout. Banks that held Fannie Mae stock received bailout money. No reason individual investors should be left out in the cold.