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Back to basics: Limits on Section 1244

Paul Clark
Paul Clark
Last updated: January 17, 2024
Venture south fallback

Yes, there are some limits on Section 1244 losses. The $50k / $100k is one. Another is that it only applies to the first $1M that went into a company.

This is almost always true of “family and friends” money; it’s often true of the angel rounds; it’s generally not true of later stage, venture capital rounds. Angels > Venture Capital here.

It can be complicated on angel rounds too. How do you figure out who can take this benefit if, say, the $500k angel round represents the $750,000-$1,250,000 dollars into a company?  Good record keeping, thorough understanding of the company’s cap table, being the lead investor and first funders in a round – all helps to make sure you get the benefit in these situations.