This bill reduces the time period a noncorporate taxpayer is required to hold qualified small business stock (QSBS) before a percentage of the gain on the sale or exchange of such stock may be excluded from gross income. (Limitations apply.) The bill also expands QSBS to include qualified debt instruments and certain corporate stock.
Under current law, a noncorporate taxpayer may exclude from gross income 100% of the gain from the sale or exchange of QSBS acquired after September 27, 2010 (or a smaller percentage if acquired on or before such date) and held for more than five years. Further, under current law, QSBS must be C corporation stock. (Exclusions and other requirements apply.)
The bill allows a noncorporate taxpayer to exclude from gross income
50% of the gain on the sale or exchange of QSBS (purchased after the enactment date of the bill) held for three years, 75% of the gain on the sale or exchange of such stock held for four years, and 100% of the gain on the sale or exchange of such stock held for five years. Further, the bill expands QSBS to include stock acquired through the conversion of a qualified convertible debt instrument (e.g., bond converted into stock). Under the bill, the holding period of such stock includes the time period during which the qualified convertible debt instrument is held.
Finally, the bill expands QSBS to include corporate stock, not just C corporation stock. (Limitations apply.).