Noncorporate investors who sold or plan to sell QSBS in 2011 and are expecting a large tax windfall under Section 1202 of the I.R.C. (“Section 1202”) will likely be disappointed. In general, the tax break under Section 1202 for gain realized by a noncorporate investor on the sale or exchange of QSBS in 2011, which is held by such investor as a capital asset and for a period of over 5 years, is about 1%. So why are people making such a big deal about Section 1202 as this year comes to a close?
Noncorporate investors who acquire QSBS after September 27, 2010, and before January 1, 2012, hold the stock for over 5 years, and then sell the stock at a gain will generally be able to exclude 100% of such gain (up to a minimum of $10 million) for both regular tax and AMT purposes. That’s right, potentially a 0% federal income tax! Of course, this assumes all of the other tests in the fine print of the rules are satisfied.
If you are looking for ways to take advantage of Section 1202 before year-end, here are some considerations...
Please see full publication below for more information.