How do I know if stock I’ve been holding is a worthless security?

A worthless security is treated as a capital asset that’s been sold on the last day of the year. As such, it generates a long-term capital loss if you’ve held the stock for more than a year or a short-term capital loss if you’ve held the stock for one year or less. To be treated as a worthless security, it must have a market value of zero, whether publicly traded or privately held. It’s up to a taxpayer to prove the security is worthless, and this isn’t always easy to do since the security may no longer be marketable on any established exchange.