A qualified small business stock (QSBS) is any stock acquired from a QSB after Aug. 10, 1993. Under Section 1202, the capital gains from qualified small businesses are exempt from federal taxes. The investor must have acquired the stock at its original issue and not on the secondary market.

What is Section 1202 exclusion?

Section 1202, also called the Small Business Stock Gains Exclusion, is a portion of the Internal Revenue Code (IRC) that allows capital gains from select small business stock to be excluded from federal tax.

When does a QSB qualify for a 100% exclusion?

And, most recently, Section 126 of the Consolidated Appropriations Act, 2016, P.L. 114 – 113, made the 100% exclusion permanent, so now QSBS purchased after Dec. 31, 2014, will qualify for full gain exclusion if all other requirements are met.

Which is an example of a qualified small business stock exclusion?

Example: The fair market value, or “QSBS” basis, of the assets you contribute to your corporation equal $5 million. You sell your business in 10 years for $55 million. You are able to exclude gain up to the greater of $10 million or 10 times your $5 million basis, which is $50 million.

Is there a 10x basis cap for qsbs?

Each partner in a partnership holding XYZ Corp’s QSBS and each shareholder of an S corporation holding XYZ Corp.’s QSBS will be treated as a separate taxpayer, with each partner or shareholder entitled to take advantage of a separate per-issuer standard $10 Million Cap and the 10X Basis Cap.

Can a qsbs be sold under section 1202?

With the corporate tax rate reduced from 35% to 21%, we have experienced a heightened awareness among business founders and investors, along with private equity groups and hedge funds, that Section 1202 potentially allows taxpayers to exclude millions of dollars of gain when QSBS is sold. [1]