Sale of Qualified Business Stock
Tax laws encourage investments in small businesses by offering unique tax incentives. If you own stock in a corporation treated as a small business, you may be able to defer your gain or exclude it entirely.
For purposes of deferring or excluding gain on the sale of stock, a small business is a C corporation with gross assets of no more than $50 million when the stock is issued. The small business must be an active business and not a mere holding company. The stock must have been issued after August 10,1993.
There are many conditions surrounding this exclusion:
- It applies only to stock issued by a small business after August 10, 1993.
- As of the date the stock was issued, the corporation was a qualified small business (see definition).
- The company must be a C corporation (not an S corporation).
- You must have acquired the stock at its original issue, either in exchange for money or other property, or as pay for services.
- During substantially all of the time you held the stock:
- The corporation was a C corporation.
- At least 80% of the value of the corporation’s assets were used in the active conduct of 1 or more qualified businesses.
- The corporation was engaged in any business other than: the performance of services in the fields of health, law, engineering, architecture, accounting, actuarial science, performing arts, consulting, athletics, financial services, brokerage services, or any trade or business ...