Description: A taxpayer other than a corportation excludes 60 percent of the gain on sale of qualified small business stock of a C corporation that is qualified small business entitiy located in an EZ other than the District of Columbia provided the stock was held for more than 5 years.

Note: Qualified small business stock must be acquired after December 21, 2000, and before January 1, 2010, at orginal issuance for cash, property (other than stock), or as compensation for services provided to the corportation.

Applicable IRS Publication: Publication 550

Stock must be acquired after December 21, 2000 and before January 1, 2010, at original issuance for cash.

Example : Bob realizes a $300,000 gain from the sale of stock he purchased six years ago. If the maximum 20% capital gain rate applies, Bob's tax on the gain would be:

$300,000 x .20 = $60,000

If Bob realized the $300,000 gain from the sale of qualified small business stock of C corportion that was qualified small business entity located in an EZ, 60 percent of the gain would be excluded from gross income. The portion of the gain included in gross income would be characterized as section 1202 gain subject to tax at a maximum rate of 28%. If the maximum rate applies, Bob's tax on the gain would be:

$300,000 x .40 = $33,600

Note: The maximum rate of tax on section 1202 gains is 28%. The maximum rate of tax on capital gains other than section 1202 gains is generally 20%.