Section 1244 stock in a corporation provides qualified shareholders with an important tax advantage in the event the company suffers a loss or goes out of business.
For ordinary stock, capital losses from the sale of those assets must be offset with other capital gains or with ordinary income, to a limited extent. However, losses from the sale of a section 1244 stock can be used to offset ordinary income up to $50,000 for individuals or $100,000 for joint filers.
In order to qualify for Section 1244 stock, a corporation and its shareholders must meet five important criteria, detailed on “What is Section 1244 Stock?” found at the Knowledge Center at MaxFilings.
Section 1244 stock can help ease the burden for you and your shareholders in the event the company goes defunct. This is an important issue to consider when incorporating your business.