Agreement to Incorporate as an S Corp and as Small Business Corporation with Qualification for Section 1244 Stock
Description S Corp Corporation
How to fill out Small Business Section 1244?
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Small Business 1244 FAQ
HW: How are gains from the sale of § 1244 stock treated?The general rule is that shareholders receive capital gain or loss treatment upon the sale or exchange of stock. However, it is possible to receive an ordinary loss deduction if the loss is sustained on small business stock (A§ 1244 stock).
The stock must be issued by U.S. corporations and can be either a common or preferred stock. The corporation's aggregate capital must not have exceeded $1 million when the stock was issued and the corporation cannot derive more than 50% of its income from passive investments.
To qualify as IRC Sec. 1244 stock, the stock must be issued by a domestic corporation, and it must be either voting or non- voting common stock. Preferred stock may not qualify as IRC Sec.
1244 stock is issued to S corporations, such corporations and their shareholders may not treat losses on such stock as ordinary losses. This is so notwithstanding IRC Sec.If the stock is subsequently sold at a loss or becomes worthless, such losses may be treated as ordinary losses rather than capital losses.
Any excess over $3,000 must be carried over to the next year. A loss on Section 1244 stock, on the othe hand, is deductible as an ordinary loss up to $50,000 ($100,000 on a joint return, even if only one spouse has a Section 1244 loss). A big difference! Note that ordinary losses are noramally 100% deductible.
Gains from the sale of Section 1244 stock are treated as regular long-term capital gains, but losses are treated as ordinary losses (maximum characterized as ordinary is $100,000 for married filing jointly and $50,000 for others).