Expansion of Qualified Small Business Stock Gain Exclusion
Section 70431 · Sec. 70431 ·
What this chapter is about
This part widens a tax break on selling small business stock. New stock gets 50 percent free at three years, 75 at four and 100 at five. The per company cap rises from $10 million to $15 million. The asset test for a small business rises to $75 million.
The document says “shall not”Who acts: Secretary of the TreasuryHow: statuteSec. 70431 in the PDF
What the document says
“except as provided in paragraphs (3) and (4), 50 percent of any gain from the sale or exchange of qualified small business stock acquired on or before the applicable date and held for more than 5 years, and”
The section rewrites section 1202(a)(1) of the Internal Revenue Code of 1986 so that for a taxpayer other than a corporation gross income leaves out 50 percent of gain on qualified small business stock acquired on or before the applicable date and held more than five years, and the applicable percentage of gain on stock acquired after the applicable date and held at least three years.
What the document actually says
“except as provided in paragraphs (3) and (4), 50 percent of any gain from the sale or exchange of qualified small business stock acquired on or before the applicable date and held for more than 5 years, and”
That sentence, in plain words
Half the gain on older stock is left out of income. That stock must have been held more than five years.
What this is about
Newer stock is treated under a second rule. It needs only three years of holding. Its share is set by a table.
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The document says “shall”Who acts: Secretary of the TreasuryHow: statuteSec. 70431 in the PDF
What the document says
“The applicable percentage under paragraph (1) shall be determined under the following table:”
The section adds a new paragraph (5) to section 1202(a) of the Internal Revenue Code of 1986 setting the applicable percentage at 50 percent for stock held three years, 75 percent for four years, and 100 percent for five years or more.
What the document actually says
“The applicable percentage under paragraph (1) shall be determined under the following table:”
That sentence, in plain words
The share is set by the table that follows.
What this is about
At three years half the gain is free. At four years it is three quarters. At five years or more all of it is free.
No action is recorded against this proposal. That is not evidence that none has been taken, and nobody has yet read it against the record. See what the tracker does not yet cover.
“The term `applicable date' means the date of the enactment of this paragraph.”
The section adds a new paragraph (6) to section 1202(a) of the Internal Revenue Code of 1986 defining the applicable date as the date the paragraph was enacted, and the acquisition date as the first day the taxpayer held the stock, worked out after applying section 1223.
What the document actually says
“The term `applicable date' means the date of the enactment of this paragraph.”
That sentence, in plain words
The applicable date is the day this paragraph became law.
What this is about
That date splits older stock from newer. The acquisition date is the first day the holder had the stock. Another rule may pull that day back.
No action is recorded against this proposal. That is not evidence that none has been taken, and nobody has yet read it against the record. See what the tracker does not yet cover.
“Section 57(a)(7) is amended by striking "An amount" and inserting "In the case of stock acquired on or before the date of the enactment of the Creating Small Business Jobs Act of 2010, an amount".”
The section narrows section 57(a)(7) of the Internal Revenue Code of 1986 to stock acquired on or before the enactment of the Creating Small Business Jobs Act of 2010, and strikes subparagraph (C) of section 1202(a)(4) as a conforming change. That amendment takes effect as if included in section 2011 of that 2010 Act, while the rest of the subsection applies to taxable years beginning after enactment of this Act.
What the document actually says
“Section 57(a)(7) is amended by striking "An amount" and inserting "In the case of stock acquired on or before the date of the enactment of the Creating Small Business Jobs Act of 2010, an amount".”
That sentence, in plain words
Two words are taken out of a minimum tax rule. Longer wording is put in. It ties the rule to stock bought on or before a 2010 law.
What this is about
So newer stock stays out of that rule. The change is treated as part of the 2010 law. That older law is not indexed here.
No action is recorded against this proposal. That is not evidence that none has been taken, and nobody has yet read it against the record. See what the tracker does not yet cover.
“if such stock was acquired by the taxpayer after the applicable date, $15,000,000, reduced by the sum of--”
The section rewrites section 1202(b)(1)(A) of the Internal Revenue Code of 1986 to point to the applicable dollar limit and adds a new paragraph (4) setting that limit at $10,000,000 for stock acquired on or before the applicable date and $15,000,000 for stock acquired after it, in each case reduced by eligible gain already taken into account for prior years from that corporation's stock. From a taxable year beginning after 2026 the $15,000,000 rises with a cost of living adjustment measured from calendar year 2025, rounded to the nearest $10,000, and once the limit is exceeded in a year the limit for later years is zero.
What the document actually says
“if such stock was acquired by the taxpayer after the applicable date, $15,000,000, reduced by the sum of--”
That sentence, in plain words
For stock bought after the applicable date the cap is $15 million. It is cut by the sums listed below.
What this is about
For older stock the cap stays at $10 million. Gain already claimed cuts the cap. Once the cap is passed, later years get nothing.
No action is recorded against this proposal. That is not evidence that none has been taken, and nobody has yet read it against the record. See what the tracker does not yet cover.
The document says “shall”Who acts: Secretary of the TreasuryHow: statuteSec. 70431 in the PDF
What the document says
“paragraph (4)(A) shall be applied by substituting `$5,000,000' for `$10,000,000', and”
The section rewrites section 1202(b)(3)(A) of the Internal Revenue Code of 1986 so that on a separate return by a married individual the $10,000,000 limit reads $5,000,000 and the limit for newer stock is halved. Those amendments apply to taxable years beginning after enactment.
What the document actually says
“paragraph (4)(A) shall be applied by substituting `$5,000,000' for `$10,000,000', and”
That sentence, in plain words
On a separate return one figure is halved. It reads $5 million rather than $10 million.
What this is about
The cap for newer stock is halved too. So each spouse gets half the limit. That only applies where they file apart.
No action is recorded against this proposal. That is not evidence that none has been taken, and nobody has yet read it against the record. See what the tracker does not yet cover.
“Subparagraphs (A) and (B) of section 1202(d)(1) are each amended by striking "$50,000,000" and inserting "$75,000,000".”
The section strikes $50,000,000 and inserts $75,000,000 in subparagraphs (A) and (B) of section 1202(d)(1) of the Internal Revenue Code of 1986, and adds an inflation adjustment so that from a taxable year beginning after 2026 those figures rise with a cost of living adjustment measured from calendar year 2025, rounded to the nearest $10,000. The change applies to stock issued after enactment.
What the document actually says
“Subparagraphs (A) and (B) of section 1202(d)(1) are each amended by striking "$50,000,000" and inserting "$75,000,000".”
That sentence, in plain words
The figure $50 million is taken out in two places. The figure $75 million is put in.
What this is about
The figure caps how big a firm may be. A bigger cap lets more firms qualify. It grows with prices after 2026.
No action is recorded against this proposal. That is not evidence that none has been taken, and nobody has yet read it against the record. See what the tracker does not yet cover.
Each distinct thing the section does: split the exclusion between stock acquired before and after the applicable date, set the phased percentages by holding period, define the applicable date and the acquisition date, keep the gain out of the tax preference item, raise the per issuer limit and index it, halve it on a separate return, raise the gross assets test and index it, and fix the effective dates.
The conforming cross reference amendments in paragraph (5) of subsection (a), which redirect references without changing what anyone must do.
The section works by amending sections 57(a)(7) and 1202 of the Internal Revenue Code of 1986 and refers to the Creating Small Business Jobs Act of 2010, neither of which is indexed here.
