Section 1244 Small Business Stock Loss Calculator 2026
Calculate ordinary loss treatment on §1244 qualifying small business stock. Escape the $3K capital loss cap with up to $100K/year of ordinary losses deductible against W-2 income.
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Your cost basis minus proceeds (zero if company failed)
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Positive = gains; negative = other capital losses
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§1244 Loss vs Capital Loss Comparison
| Item | With §1244 | Without §1244 (Capital Loss) |
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How Section 1244 Ordinary Loss Treatment Works
Without §1244, startup investment losses are capital losses — limited to $3,000 per year against ordinary income. With §1244, up to $100,000 (MFJ) or $50,000 (others) becomes an ordinary loss, immediately deductible against wages and business income.
§1244 Ordinary Portion = min(Total Loss, $100K MFJ / $50K others)
Excess = Total Loss − §1244 Ordinary Portion (treated as capital loss)
Capital Loss Offset = min(Excess + Other Cap Losses, $3,000/yr)
Capital Loss Carryforward = Excess − Current Year Offset
Years to Absorb Carryforward = Carryforward ÷ $3,000
Excess = Total Loss − §1244 Ordinary Portion (treated as capital loss)
Capital Loss Offset = min(Excess + Other Cap Losses, $3,000/yr)
Capital Loss Carryforward = Excess − Current Year Offset
Years to Absorb Carryforward = Carryforward ÷ $3,000
Example (Single): $80K §1244 loss, $150K ordinary income, 32% marginal rate
§1244 ordinary: $50K → tax refund: $50K × 32% = $16,000
Excess capital loss: $30K → $3K/year → 10 years to absorb
vs. pure capital loss: $3K/yr × 32% = $960/yr for 26+ years
§1244 ordinary: $50K → tax refund: $50K × 32% = $16,000
Excess capital loss: $30K → $3K/year → 10 years to absorb
vs. pure capital loss: $3K/yr × 32% = $960/yr for 26+ years
Extended
§1244 Eligibility Checker + Multi-Year Carryforward Chart
5-factor eligibility score, dual scenario comparison, and capital loss absorption timeline
Check §1244 eligibility and see how much faster the loss is absorbed compared to pure capital loss treatment.
§1244 Eligibility Checklist
Multi-Year Loss Absorption Inputs
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Multi-Year Capital Loss Carryforward — §1244 vs No §1244
With §1244 (ordinary portion deducted year 1) Without §1244 (pure capital loss $3K/yr)
Year-by-Year Loss Absorption Comparison
| Year | §1244: Remaining Carryforward | §1244: Tax Saved This Year | No §1244: Remaining | No §1244: Tax Saved |
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Frequently Asked Questions
What is Section 1244 stock and how does it help with losses?
Section 1244 lets you deduct losses on qualifying small business stock as ordinary losses (not capital losses). Ordinary losses can offset W-2 income, business income, and other ordinary income dollar-for-dollar. Capital losses are limited to $3,000 per year against ordinary income. So a $50,000 §1244 loss saves you $50,000 × your marginal rate immediately, versus a capital loss that might take 16+ years to fully absorb at the $3K annual limit.
What are the requirements for a stock to qualify under Section 1244?
Five requirements must all be met: (1) The issuing corporation must be a domestic C corporation or S corporation, (2) Total money/property received by the corporation for stock (paid-in capital and surplus) must not exceed $1 million at issuance, (3) You must have received the stock as original issue — not purchased from another shareholder, (4) The corporation must be an active business (not primarily receiving passive income), (5) You must be the original investor who received stock directly from the corporation.
What is the annual ordinary loss limit under Section 1244?
For married filing jointly: up to $100,000 of §1244 loss per year can be treated as ordinary loss. For all other filers (single, MFS, HoH): up to $50,000 per year. Any §1244 loss exceeding these limits is treated as a capital loss, subject to the normal $3,000 annual limit against ordinary income. If your loss exceeds the §1244 limit, the excess becomes a capital loss.
Can partnerships and LLCs have Section 1244 stock?
No. Section 1244 applies only to stock in domestic corporations (C corps and S corps). Partnership interests, LLC membership interests, and convertible notes do not qualify. If you invest in a startup LLC, you do not get §1244 treatment on a loss. However, if the LLC is taxed as a corporation (check-the-box election) and issues stock, those shares may qualify. Consult a tax advisor on entity structure if §1244 qualification is a priority.
How does Section 1244 interact with QSBS (Section 1202) exclusion?
Section 1244 and Section 1202 can apply to the same shares. Section 1202 (Qualified Small Business Stock) lets you exclude up to 100% of gain on qualifying stock held more than 5 years — providing gain exclusion. Section 1244 provides loss protection if the investment fails. Both require the $1M paid-in capital limit and original issue requirement. However, §1202 has additional requirements (C corp only, active business, 5-year holding period) that §1244 does not.