Dear Harry: About 20 years ago, I participated in my former employer's stock-purchase plan by means of payroll deductions. I was able to accumulate 40 shares. I hoped to hold on to them and use them as a supplement to my retirement pensions. The value of the shares almost evaporated during the meltdown last year. The company recently had a reverse stock split of one for 20. That cut me down to two shares. They probably did this to avoid being taken off the stock exchange listing. I don't think that the stock has the chance of a snowball in hell to recover its former glory days. I am now thinking of selling it and taking the loss. When tax time rolls around, how do I calculate the cost of my vast horde of shares? Do I base it on dates of the stock purchases or some other method in view of the reverse split? Once I determine the loss, how can I write it off on my tax return?

What Harry says: Your cost for tax purposes is the amount you paid for the 40 shares. That may not be easy to determine unless you have kept careful records. The loss is deductible on your 1040 as part of Schedule D. It may be deducted to the full extent of any capital gains plus $3,000 against other income. If there's still some loss left over, you may carry it forward for an unlimited number of years to be deducted in the same way against capital gains and other income.

Write Harry Gross c/o the Daily News, 400 N. Broad St., Philadelphia, PA 19130. Harry urges all his readers to give blood - contact the American Red Cross at 800-GIVE LIFE.