Under section 1244, shareholders of domestic small business corporations can deduct a loss on the disposal of 1244 stock as ordinary loss rather than capital loss. A deduction for capital loss is limited to $3,000 annually. Any excess capital loss has to be carried over to the next year. Nevertheless, ordinary loss under Section 1244 is deductible up to $50,000 for the individuals and $100,000 for joint returns.
How to qualify for Section 1244 stock?
To receive a tax benefit under Section 1244, a business must meet specific requirements for the insurance of small business stock, the stock itself, and the shareholders. To qualify the corporation’s equity may not exceed $1,000,000 at the time the stock was issued, the stock must be issued for money or property, and for five years preceding the loss the corporation generally must have derived more than half of its gross recipients from business operations and not from passive income.
To understand if you qualify for Section 1244 stock, speak to one of our attorneys by calling our toll free number (800) 603 – 3900