Question 1

A taxpayer holds Qualified Small Business Stock (QSBS) under §1202 acquired in Year 1 (after 2010). They sell it in Year 7 for a gain of $2 million. They have no other capital gains. What is the federal income tax on this gain?

Accepted Answer

Check the date. Post-Sept 2010 acquisition = 100% exclusion. Check holding period (5 years). If met, tax is zero (up to $10M or 10x basis).

Question 2

What mistakes do candidates make on this CPA question?

Accepted Answer

Applying the old 50% or 75% exclusion rules or applying the 28% collectible/QSBS rate to the whole amount.

A taxpayer holds Qualified Small Business Stock (QSBS) under §1202 acquired in Year 1 (after 2010). They sell it in Year 7 for a gain of $2 million. They have no other capital gains. What is the federal income tax on this gain?

How to approach this question

Full Answer

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Practice the full CPA TCP Practice Exam 2

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