August 31, 2015
100% Gain Exclusion Possible Starting This Year
Beginning September 28th, you may be eligible to exclude 100% of your capital gain from the sale of certain qualified small business stock (QSBS) on your Federal tax return. In order to qualify for the 100% exclusion, you must have acquired the QSBS between Sept. 28, 2010 and Dec. 31 2014. The amount of eligible gain is the greater of $10 million or 10 times your basis in the stock.
Example – Jane purchased qualified small business stock on September 28, 2010 for $100. She sold the stock on September 29, 2015 for $11,000,000 in proceeds. Jane can exclude $10 million of her gain in this scenario resulting in a tax savings of $2,380,000 ($10 million gain * 20% capital gains rate + 3.8% net investment income tax). As an added benefit, Jane’s tax benefit will not be reduced by the alternative minimum tax as this is inapplicable for the 100% gain exclusion. Her remaining $999,900 of gain will be taxed as a long term capital gain.
QSBS is stock of a U.S. “C” Corporation with gross assets of less than $50 million before and immediately after the issuance of the stock. Although you may not qualify for the 100% gain exclusion, you may qualify for a 50% or 75% gain exclusion depending on when you acquired the stock.
For more information regarding the QSBS requirements, gain exclusion amounts, gain rollover and other restrictions:
The QSBS provisions can be nuanced and complex. We would be happy to assist you in reviewing your stock holdings to determine if any would qualify for qualified small business stock treatment.