Deadline Approaching for 100% Qualified Small Business Stock Gain Exclusion

by

Via Journal of Accountancy

Taxpayers have a short window in which to act if they want to take advantage of the Sec. 1202 provision that allows exclusion of 100% of the gain realized on the sale or exchange of qualified small business stock (QSBS). Unless the law is amended, for QSBS acquired after Dec. 31, 2013, the Sec. 1202 exclusion percentage will fall to 50%, and an alternative minimum tax (AMT) preference will further erode the exclusion’s advantages.

Currently, Sec. 1202 allows exclusion of 100% of the gain realized on the sale or exchange of QSBS for stock that is acquired after Sept. 27, 2010, and before Jan. 1, 2014, and held for more than five years. The exclusion applies to non-corporate taxpayers within certain tax-year limits.

In addition, the Sec. 57(a)(7) AMT preference for a portion of the gain excluded under Sec. 1202 does not apply to QSBS purchased within this period (Sec. 1202(a)(4)). Because the deadline for acquiring stock that will qualify for the more favorable treatment is rapidly approaching, investors should plan to complete any purchases of stock that could qualify as QSBS before the end of the year. 

If you have any questions regarding this article or any other matter, please contact our office at (714) 836-8300.

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