An individual (single) sells Section 1244 small business stock for a loss of $70,000. They have no capital gains. What is the tax treatment of the loss?

Answer options:

$70,000 Capital Loss ($3,000 deductible)

$50,000 Ordinary Loss; $20,000 Capital Loss ($3,000 deductible)

$70,000 Ordinary Loss

$3,000 Ordinary Loss; $67,000 Capital Loss

How to approach this question

Section 1244 Limit: $50k (Single) / $100k (MFJ) treated as Ordinary. Excess is Capital.

Full Answer

B.$50,000 Ordinary Loss; $20,000 Capital Loss ($3,000 deductible)✓ Correct

IRC §1244. Maximum ordinary loss deduction is $50,000 for single taxpayers ($100,000 for MFJ). The remaining $20,000 is a capital loss, subject to the $3,000 annual limitation against ordinary income.

Common mistakes

Applying the $100k limit to a single filer.

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