A type of equity named after Internal Revenue Code Section 1244, Section 1244 allows losses from the sale of certain shares of small, domestic corporations to be deducted as ordinary losses instead of as capital losses (presently capped at a maximum of $50,000 for individual tax returns or $100,000 for joint returns). To qualify for section 1244 treatment, the company’s total invested capital must not have been more than $1M when your stock was issued. Your must have paid for the stock rather than receiving it as compensation, and only individual shareholders who purchase the stock directly from the company qualify for the special tax treatment.
Note: Seraf is not a tax advisor. You should consult your tax advisor before claiming eligibility for 1244 or other angel tax incentives.