The “Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010,” includes an extension of the 100% exclusion from income of the gain from the sale of qualifying small business stock acquired as discussed below.
The above Act contains a number of provisions aimed at encouraging investment in small businesses. These provisions include an amendment to Section 1202 of the Internal Revenue Code of 1986, as amended (the “Code”), temporarily permitting the exclusion of 100 percent of the gain from the sale of certain “qualified small business stock” acquired after September 27, 2010 and before January 1, 2011 that is held for more than five years by a non-corporate taxpayer. The new rule extends the deadline for purchasing “qualified small business stock” by one year.
Qualifying small business stock must be acquired from a C corporation whose gross assets do not exceed $50 million. The amount of gain eligible for the exclusion is limited to the greater of ten times the taxpayer’s basis in the stock or $10 million of gain from stock in that corporation.
More information about this potentially lucrative tax break is available on page 65 of IRS Publication 550, Investment Income and Expenses.