Under the IRC, you can only deduct ordinary losses against ordinary gains, and you can only deduct capital losses against capital gains. Since most people usually have much more ordinary income than they have capital gains, ordinary losses are usually more useful than capital losses in reducing one’s taxable income.
Owners of unincorporated businesses who sell or liquidate their businesses at a loss are allowed to deduct those losses against their ordinary income. Owners of corporations who sell or liquidate their corporations at a loss are required to deduct those losses against their capital gains. If their capital losses exceed their capital gains, they are allowed to divide the loss into increments of up to $3000 per year and deduct that amount against their ordinary income. At that rate, depending on the amount of the capital loss, it may be many years before the entire loss is deducted.
To give the owners of small corporations the same deduction advantages as the owners of unincorporated businesses, Congress created IRC Section 1244. Under Section 1244, the owners of certain corporations may be entitled to take ordinary loss deductions following the sale or liquidation of their businesses.>>> READ MORE at: