On January 2, 2013, President Obama signed into law
the American Taxpayer Relief Act of 2012 (the
"Act").
Among its provisions, the Act extends a tax benefit whereby
capital gains from the sale or exchange of certain qualified small
business stock ("QSBS") held by non-corporate
taxpayers can qualify for a 100% exclusion from federal income
taxation, including from the alternative minimum tax. This
tax exemption had expired on December 31, 2011.
The new law retroactively restores and extends the
exemption. As a result, provided certain holding period and
other requirements are satisfied, capital gains from the sale of
QSBS acquired after September 27, 2010 and on or before December
31, 2013 can qualify for the 100% tax exemption.
Capital gains that are exempt from taxation under the QSBS rules
also should not be subject to the new 3.8% tax on net investment
income that, beginning in 2013, generally applies to capital gains
realized if certain income thresholds are exceeded.
Looking beyond 2013, if Congress does not enact additional
legislation, the capital gain exclusion amount will revert to 50%
(60% for certain "empowerment zone corporations") for
qualifying sales of QSBS acquired on or after January 1,
2014. Consequently, a portion of the gain from the sale or
exchange of such QSBS will be subject to federal income taxation,
the alternative minimum tax and the 3.8% tax on net investment
income.
For more information on the requirements for qualifying for the
QSBS tax exemption, including the greater than 5 year holding
period requirement,
click here to view an earlier
communication on this topic.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.