Section 1202 offers a once little-known exclusion from income for gain on qualified small business stock (“QSB stock”). The provision has undergone substantial revisions over the years and came back into vogue as a result of the Tax Cuts & Jobs Act. Where applicable, section 1202’s exclusion offers a substantial and legitimate tax shelter: The exclusion of potentially all of the gain on QSB stock held for more than five years.
Section 1202 of the Internal Revenue Code allows a taxpayer (other than a corporation) to exclude a percentage of gain from the sale or exchange of qualified small business stock held for more than 5 years. The exclusion is subject to a number of intricate requirements. But where applicable, the exclusion provides one of the Code’s most significant tax breaks.