How do I Claim a 1244 Loss Deduction?

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At times, investors prefer 1244 stock because they can use any loss on Section 1244 stock as an ordinary loss instead of a capital loss. Normally, stock is a capital gain or loss. Section 1244 stock, however, is stock for small business, providing an ordinary loss or a capital gain. In general, there is no limit on ordinary losses, while capital losses are limited to $3,000 per year. For 1244 losses, a taxpayer can claim an annual maximum of $50,000, if single, or $100,000 for a married couple. Any loss over this amount is a capital loss.

  • Write a description of the stock, the date you acquired the stock, the date you sold the stock, the sales price of the stock, your cost to purchase the stock and the loss from the stock on Form 4797 Line 10.

  • Finish Form 4797 Lines 11 through 18. The instructions are self-explanatory, and involve simple addition and subtraction. Section 1244 stock does not fall under either category for Line 18a, so report the loss from Section 1244 stock only on line 18b.

  • Transfer the amount form Form 4797 Line 18b to Form 1040 Line 14, to finish claiming the deduction.

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