The tax law currently provides very significant tax incentives to non-corporate holders of qualified small business stock (or “QSBS”), if certain requirements are met.
If QSBS is sold after being held for more than five years, the seller may exclude up to 100% of the gain from U.S. federal income tax, up to a limit. Generally, the amount of gain which is excludable from tax is limited to the greater of 1) $10 million and 2) 10 times the holders’ aggregate tax basis in the shares being sold.
The full 100% exclusion percentage only applies to QSBS which was originally acquired after September 27, 2010. For QSBS which was acquired before September 28, 2010, a lower exclusion percentage would apply (e.g., 75% or 50%, or maybe less, depending on the exact date of acquisition).
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