Senate To Consider Temporary Repeal of Capital Gains Taxes On QSB Stock

As I’ve previously blogged, the U.S. House of Representatives approved a complete elimination of capital gains taxes on qualified small business stock purchased between March 15, 2010 and January 1, 2012, including a repeal of the alternative minimum tax associated with the IRC Section 1202 tax benefit.

Now the Senate is going to consider the same bill, as part of its small business lending bill, when it returns from the July 4th recess.

You can find links to the statute and the explanation of the statute here.

A summary of the QSB exclusion states as follows:

100% Exclusion of Small Business Capital Gains. Generally, non-corporate taxpayers may exclude 50 percent of the gain from the sale of certain small business stock acquired at original issue and held for more than five years. For stock acquired after February 17, 2009 and before January 1, 2011, the exclusion is increased to 75 percent. At the time of sale, however, 28% of the excluded gain will be treated as a tax preference item subject to the alternative minimum tax (AMT). Qualifying small business stock is from a C corporation whose gross assets do not exceed $50 million (including the proceeds received from the issuance of the stock) and who meets a specific active business requirement. 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. This bill would temporarily increase further the amount of the exclusion to 100 percent of the gain from the sale of qualifying small business stock that is acquired after the date of enactment in 2010 and held for more than five years. Additionally, the bill eliminates the AMT preference item attributable for that sale. This provision is estimated to cost $517 million over ten years.

If the Senate passes this bill, hopefully it will work a little like the home purchasing tax credit, and cause some sort of “surge” in investments in startups. Is it unfortunate that the provision isn’t permanent? I think so. However, I believe it is a step in the right direction. Investments in startups translate directly into jobs.

About Joe Wallin

Joe Wallin focuses on emerging, high growth, and startup companies. Joe frequently represents companies in angel and venture financings, mergers and acquisitions, and other significant business transactions. Joe also represents investors in U.S. businesses, and provides general counsel services for companies from startup to post-public.
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