What is a Section 1202 exclusion?
Section 1202 exclusion is a federal tax incentive under Internal Revenue Code Section 1202 that allows eligible investors to exclude up to 100% of capital gains from the sale of qualified small business stock held for more than five years. The exclusion percentage varies by stock acquisition date, ranging from 50% for stock acquired before February 18, 2009, to 100% for stock acquired after September 27, 2010. To qualify, stock must be issued by a domestic C Corporation with gross assets under $50 million at issuance, acquired at original issuance, and used in active business operations throughout the holding period. The maximum exclusion is limited to the greater of $10 million or 10 times the stock's adjusted basis. Individuals report Section 1202 exclusions on Form 8949 and Schedule D.
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