Under a separate tax provision for qualified small business stock (QSBS), you can exclude 100% of the gain on the sale of the stock held more than five years. However, as the tax law currently reads, the 100% gain exclusion does not apply to stock issued after 12/31/13. Instead, a 50% gain exclusion applies.
Strategy: Read the “fine print” in the law.
If you bought the stock before this year, you may be able to sell it at some point without paying any federal income tax on your gain. To qualify for the exclusion, the following requirements must be met.
- The stock must have been issued after Aug. 10, 1993.
- The stock could not be acquired in exchange for other stock.
- The issuing corporation must be a C corporation.
- At least 80% of the corporation’s assets must be used in the active conduct of a qualified trade or business.
- Certain businesses, such as those involving real estate or personal services (e.g., law, health, financial services, etc.), were excluded.
- The corporation could not have more than $50 million in assets at the time the stock was issued.
- The stock must be held for more than five years.