On September 27, 2010, President Obama signed into law the Small Business Jobs Act of 2010 (the Act). Among other things, the Act excludes 100% of the gain derived from the sale of qualified small business stock (QSBS) from gross income if held for more than 5 years, so long as the stock was purchased between 9/28/10 and 12/31/10. Recently, this provision was extended to such stock purchased before 12/31/11. Further, such excluded gain will not be an alternative minimum tax (AMT) preference item.
Prior to the Act, Section 1202 of the Internal Revenue Code provided for the exclusion of only 50% of the gain on the sale of QSBS (this was amended to increase the exclusion to 75% for stock acquired between 2/18/09 and 12/31/10). Further, any gain excluded from gross income would be a preference item for calculating AMT.
What are the requirements?
1. QSBS must be acquired after 9/27/10, but before 1/1/12.
2. QSBS must be held for at least 5 years.
3. The amount of gain excluded is limited to the greater of $10M or 10 times the taxpayer’s investment in the QSBS.
4. Generally, the taxpayer must be a non-corporate taxpayer