A substantial benefit for those individuals who have formed small to mid-sized C corporations before the end of 2010. IRC §1202 has been previously used by taxpayers to exclude one half of the capital gain they realize when they sell qualifying §1202 stock at a gain. To qualify, the stock had to be acquired as an original issue directly from a C corporation with less than $50,000,000 in assets and be held for five years or more before sale. Also if an individual purchased the stock on February 17, 2009, to January 1, 2011, the taxpayer could then exclude 75 percent of the gain.
The Act now provides that if the stock is issued during the last three months of the 2010 tax year, then the taxpayer enjoys a total 100 percent exclusion from any gains when the taxpayer sells the stock after a five-year holding period. There is a maximum exclusion of the lesser of $10,000,000 in capital gains or 10 times the stockholder’s basis.
For example: Consider a taxpayer who organizes a C corporation in October 2010 by investing $400,000 for all the company’s stock. The business is successful and in 2016 she sells her stock for $3,000,000. In this situation the taxpayer owes no tax on capital gains.
John R. Dundon, EA - 720-234-1177 - jddundon@comcast.net - http://prep.1040.com/jd/ - Enrolled with the United States Department of Treasury to Practice before the IRS - Enrolled Agent # 85353. Under contract with the IRS as a Certified Individual Taxpayer Identification Number (ITIN) Acceptance Agent - I am a Federally Authorized Tax Practitioner (USC 31 Section 330 + IRC 7525a.3.A) regulated under US Treasury Cir. 230.