Generally speaking, a small C Corporation shareholder’s loss from the sale or exchange of their stock is considered a capital loss and must be used to offset the amount of any capital gains they may have had during the year. If they had no capital gains, the loss can then be used to offset ordinary income, but only to a limited extent, that is currently set at $3,000 per year.
However, "Eligible Small Corporations are allowed to issue Section 1244 Stock," allowing for a preferential tax treatment." The IRS has allowed small corporation shareholder’s loss from the sale or exchange of Section 1244 Stock to offset their ordinary income of up to $50,000 for an individual and $100,000 for a husband and wife who file a joint return.
Thus, "Section 1244 Stock" gives qualifying shareholders an important tax advantage when a small corporation suffers losses or goes out of business.
So, if you meet the required tests to be eligible for Section 1244 treatment, you may be able to deduct your losses (sustained on your small corporations) in the amount of upto $100,000 against your ordinary income.