What is Qualified small business stock (Section 1202)?
In short
Qualified small business stock under Section 1202 is stock in a domestic C corporation, acquired at original issue, that lets non-corporate shareholders exclude some or all of the gain on sale if holding period and other requirements are met.
Key takeaways
- For stock issued after July 4, 2025: 50% exclusion after 3 years, 75% after 4 and 100% after 5.
- The gain eligible for exclusion is capped per issuer, and the corporation's gross assets must be under a limit when the stock is issued.
- S corporation stock doesn't qualify.
Where it's tested
TCP: Entity Choice & Structuring — study notes, a five-minute revision sheet and practice questions.
Practise: 3 questions
Question 1 of 3 · 0 answered
A C corporation with substantially appreciated assets wants to convert to an LLC taxed as a partnership. What is the primary tax consequence?