Qualifying as Small Business Stock (Section 1202)

To qualify as QSB stock:

  • The stock must have been issued by a C corporation, not an S corporation.
  • The gross assets of the corporation must have been no more than $50 million at all times after August 9, 1993, and before issuance of the stock, as well as immediately after issuance of the stock.
  • The corporation must be an active business, it cannot be a holding company.

Lifetime limit:

There is a lifetime limit on the Section 1202 exclusion for qualified small business stock or empowerment zone business stock from any one issuer:

The amount of gain from any one issuer that is eligible for the 50% (or 60%) exclusion is limited to the greater of:

  • Ten (10) times your basis in the qualified stock that you disposed, or
  • $10 million ($5 million if married filing separately) MINUS any gain on stock from the same issuer that you excluded in prior years.

Reporting the Section 1202 Gain and the Exclusion

  • Report the entire gain as a long-term gain on Line 8 of Schedule D.
  • Enter the allowable exclusion as a loss below the entry for the gain.
  • Label the the entry for the allowable exclusion as follows:
    • Section 1202 exclusion

To qualify as qualified small business stock for the purpose of deferring or excluding gain:

  • The stock must be stock in a C corporation (not an S corporation)
  • The stock was originally issued after August 10, 1993.
  • The gross assets of the corporation must have been no more than $50 million at all times after August 9, 1993, and before issuance of the stock, as well as immediately after issuance of the stock.
  • The corporation must be an active business, it cannot be a holding company.

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