Distinct from QSBS, which covers gains — Section 1244 instead covers losses, letting qualifying small business stock losses be treated as fully deductible ordinary losses up to a limit.
How it works
The smaller of the total loss or the filing-status limit ($50,000 single, $100,000 married filing jointly) is treated as an ordinary loss; any amount above the limit is a standard capital loss instead.
What this does not include
This computes the loss-limit split only — qualifying for Section 1244 treatment at all requires the stock to meet specific requirements (issued by a domestic small business corporation, generally for cash or property, not services), which this calculator assumes rather than verifies.
How to use this calculator
- Enter your filing status and total loss on qualifying small business stock.
Frequently asked questions
Why does ordinary loss treatment matter so much?
Ordinary losses are fully deductible against ordinary income in the year incurred; capital losses are instead limited to $3,000 per year against ordinary income, with any excess carried forward — a much slower tax benefit.
Who typically qualifies for Section 1244 treatment?
Original investors in a small, newly formed domestic corporation (not stock purchased on a secondary market) generally qualify, subject to specific capitalization limits at the time of issuance.
Can Section 1244 and QSBS both apply to the same stock?
They address different scenarios (loss vs. gain) on potentially the same stock — an investment could qualify for QSBS gain exclusion if it succeeds, or Section 1244 ordinary loss treatment if it fails, though not both simultaneously on the same transaction.
