ExpertMedium1 markMultiple Choice
CPA · Question 34 · Area IV: Property Transactions
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?
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?
Answer options:
A.
$400,000 (20% rate)
B.
$560,000 (28% rate)
C.
$0
D.
$296,000 (AMT applies)
How to approach this question
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).
Full Answer
C.$0✓ Correct
$0
IRC §1202(a)(4). Stock acquired after September 27, 2010, qualifies for a 100% exclusion of gain, and the excluded gain is not an AMT preference item.
Common mistakes
Applying the old 50% or 75% exclusion rules or applying the 28% collectible/QSBS rate to the whole amount.
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