Exclusion Of Gain On The Sale of Your Small Business Stock

Checking stock data
If you are the founder or an employee of a technology, manufacturing, wholesale or retail company you may be able to exclude all or part the gain on sale of your company’s stock if you hold the stock for more than 5 years. The amount of the gain to be excluded depends on when the stock was issued.

Exclusion % If Stock was issued
50% After August 10, 1993 and before February 18, 2009.
75% After February 17, 2009 and before September 28, 2010.
100% After September 27, 2010 and before January 1, 2012.

For a stock to be considered qualified small business stock it must meet all of the following five conditions:

  1. The actual stock must be issued after August 10, 1993. Note that options to buy the stock are not considered stock for purposes of Section 1202.
  2. The stock must be acquired by purchase from the corporation or for the performance of services which means it cannot be acquired by gift or inheritance.
  3. The corporation must be an active business.
  4. The corporation cannot be involved in certain activities such as;
    • One involving services performed in the fields of health, law, engineering, architecture, accounting, actuarial science, performing arts, consulting, athletics, financial services, or brokerage services;
    • One whose principal asset is the reputation or skill of one or more employees;
    • Any banking, insurance, financing, leasing, investing, or similar business;
    • Any farming business including the raising or harvesting of trees;
    • Any business involving the production of products for which percentage depletion can be claimed; or
    • Any business of operating a hotel, motel, restaurant, or similar business.
  5. The corporation’s gross assets before and after the issuance of stock cannot exceed $50 million.

Feel free to contact Gregory J. Spadea of Spadea & Associates, LLC in Ridley Park, PA at 610-521-0604 if you would like additional information on how to make the Section 1202 election.

© 2024 The Law Offices of Spadea & Associates. All Rights Reserved. Sitemap | Disclaimer | Privacy Policy by VPS Marketing Agency, LLC