Can a Loss on the Sale of Small Business Corporation Stock be an Ordinary Loss?
Section 1244 of the Internal Revenue Code of 1986, as amended, allows up to $100,000 of the loss on the sale of stock (which includes the stock becoming worthless) of a Small Business Corporation in any one tax year to be deducted in full against Ordinary Income (an Ordinary Loss), instead of being offset against Capital Gains. If the loss exceeds the limit under Section 1244, the excess will be a Capital Loss. Generally, Ordinary Income is taxed at a higher rate than Capital Gains. This means that a deduction against Ordinary Income saves more in income taxes than a deduction against Capital Gains.
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