What You Need to Know about the Section 1202 Exclusion
As 2017 comes to a close, it’s important to be aware of the tax provisions that will expire at the end of the year. One such provision is the section 1202 exclusion, which allows for taxpayers to exclude certain gains on the sale of qualified small business stock. This provision is set to expire on December 31, 2017 so be sure to consult with your tax advisor if you believe you may qualify for this exclusion.
Under section 1202 of the Internal Revenue Code, taxpayers may exclude up to $10 million ($5 million for married taxpayers filing separately) of gain from the sale of qualified small business stock (QSBS). To be eligible for this exclusion, the QSBS must be acquired:
- After August 10, 1993 and before January 1, 2018
- At original issue (directly from the issuer or through an underwriter)
- For cash (not property)
- With a view to holding it for more than five years
In addition, the stock must be issued by a C corporation that is engaged in a qualified trade or business. A qualified trade or business is defined as one that is not predominately engaged in the production of capital assets (such as inventory) or natural resources, and does not consist of certain banking, insurance, financing, leasing, investing, or similar activities.
To claim the section 1202 exclusion, taxpayers must file Form 8949 and attach it to their tax return. If you believe you may be eligible for this exclusion, be sure to consult with your tax advisor prior to December 31, 2017.
This provision is set to expire on December 31, 2017, so be sure to consult with your tax advisor to see if you qualify for this exclusion.
The section 1202 exclusion can provide significant benefits to taxpayers who qualify for it. By excluding gain on the sale of QSBS, taxpayers can save on taxes and keep more of their money. In addition, the section 1202 exclusion can be used to reduce or eliminate tax on capital gains from other investments.
If you are thinking of selling QSBS, it is important to consult with your tax advisor to see if you qualify for the section 1202 exclusion. If you do qualify, you may be able to save on taxes and keep more of your money.
In order to claim the section 1202 exclusion, taxpayers must file Form 8949 and attach it to their tax return. The form must be filed within the year of the sale of the QSBS, or within six months of the sale if you elected to report the sale on Form 4797 instead of Form 8949.
If you are unsure whether you qualify for the section 1202 exclusion, be sure to consult with your tax advisor prior to filing your tax return. Filing Form 8949 will help ensure that you receive all of the benefits available to you under this provision.
The section 1202 exclusion is a valuable tax provision that can save taxpayers money on their taxes. Be sure to consult with your tax advisor to see if you qualify for this exclusion.