Part B · Startup-relevant scheme
Section 1244 Small Business Stock Ordinary Loss Treatment (Section 1244 Stock)
Internal Revenue Service
Other
IdeationSeed / Early-Stage
Section 1244 is the downside-risk mirror of QSBS's upside benefit: if a small-business corporation's stock becomes worthless or is sold at a loss, an original individual holder can treat the loss as an ordinary loss rather than a capital loss, avoiding the usual $3,000/year capital-loss deduction limit.
Type of support
Other
Best suited for
Ideation / Early-Stage
Headline amount
Up to $50,000 ordinary-loss deduction ($100,000 joint)
How much
Up to $50,000/$100,000 ordinary-loss deduction
Objectives
Encourage individuals to invest in small business by softening the tax consequence of a startup failing, not just rewarding success.
Who can apply?
- Stock must be issued directly to the individual (or a partnership) for cash or property, not services.
- Holder must be the original recipient of the stock, not a later purchaser.
- Issuing corporation must meet Section 1244 small-business-corporation size tests at the time of issuance.
What do you get?
- Ordinary-loss treatment up to $50,000 per individual ($100,000 married filing jointly) per year.
- Loss can offset ordinary income (wages, other business income), not just capital gains.
- No separate application — a self-executing Internal Revenue Code provision.
How to apply
No application is required — qualification is determined at tax-filing time. Keep documentation from the original stock issuance (amount paid, corporate financials at issuance) and consult a tax advisor when claiming the loss.
Key links
Details as most recently confirmed against the official source linked above. Deadlines, amounts and windows change — verify on the official portal before applying.