What is Section 1244 Stock?
Normally, stock is treated as a capital asset and a loss on its sale is a capital loss.
However, a loss on Section 1244 stock of qualifying small businesses may be claimed as an ordinary loss rather than a capital loss.
- This means the loss deduction is not subject to an annual limit of $3,000.
- You claim a section 1244 stock loss on Form 4797, not Schedule D.
- A loss up to $50,000 or $100,000 on a joint return, even if only one spouse has a Section 1244 loss, may be claimed.
To qualify as Section 1244 stock:
- The corporations equity may not exceed $1,000,000 at the time the stock is issued.
- The stock must be issued for money or property (other than stock and securities).
- The corporation for the five year preceding your loss must generally have derived more than half of its gross receipts from business operations and not from passive income such as rents, royalties, dividends, interest, annuities, or gains from the sales or exchange of stock or securities.