What characterizes the loss for a married couple filing jointly who sold Section 1244 stock for a loss?

When a married couple files jointly and they realize a loss on the sale of Section 1244 stock, the loss can be treated favorably for tax purposes. Section 1244 allows for ordinary loss treatment on the sale of stock in certain small businesses, which means that losses from this stock can be deducted as ordinary losses rather than capital losses.

This is particularly beneficial because ordinary losses can offset ordinary income without the limitation that applies to capital losses. For married couples filing jointly, the maximum amount of loss that can be treated as an ordinary loss is $100,000 (or $50,000 for individual filers).

In this scenario, if the couple experienced a loss greater than the allowable ordinary loss treatment amount for Section 1244 stock, they could take the maximum ordinary loss of $100,000. Any remaining loss would then be treated as a capital loss. Hence, if the couple sold the Section 1244 stock and incurred a total loss of $122,000, they could recognize $100,000 of that loss as an ordinary loss and the remaining $22,000 as a capital loss, leading to the characterization of their loss as $100,000 ordinary and $22,000 capital.

This distinction allows the couple