Section 1202 Stock Gains Exclusion refers to a provision in the U.S. Internal Revenue Code that allows for the exclusion of capital gains from the sale of qualified small business stock (QSBS) held for more than five years.
Under this provision, taxpayers may exclude up to 100% of the capital gains from the sale of eligible QSBS, depending on when the stock was acquired. The stock must meet certain requirements, including being issued by a domestic C corporation with gross assets not exceeding $50 million at the time of issuance.
For example, if an investor buys shares of a qualifying small business and sells them after holding them for more than five years, they could potentially exclude a significant portion, or all, of the capital gains from taxable income, enhancing the tax efficiency of their investment.
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