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Small business stock
To encourage the flow of new funds into small business, Congress created a stock classification with a special tax treatment. This is Section 1244 stock. Under Code Sec. 1244, an original individual investor can treat a loss on small business corporation stock as an ordinary loss--up to $50,000 on a single return or $100,000 on a joint return. Because the Code Sec. 1244 loss is considered in any net operating loss computation, the carryback and carrover rules apply. To qualify under Code Sec. 1244, the stock must be common stock in a domestic small business corporation.
To encourage investment in small businesses, the PATH Act of 2015 extends permanently 100 percent exclusion of the profit, up to $10 million, made on the sale or exchange of stock of qualified small businesses. The stock must be held for more than five years by a non-corporate investor.