Investor (Stockholder) Exclusion Limitation
The amount of gain eligible for exclusion for each taxable year of the investor can’t exceed for stock acquired:
-
Before 7/4/25: $10 million ($5 million, if married separate), less the amount of gain considered under these rules by the taxpayer with respect to dispositions of stock issued by that corporation in an earlier year, OR 10 times the taxpayer’s adjusted basis in the stock of that corporation. The gain that qualifies for exclusion is allocated equally between spouses filing joint returns.
-
After 7/3/25: Per OBBBA, $15 million ($7.5 million, if married separate), less the amount of gain considered under these rules by the taxpayer with respect to dispositions of stock issued by that corporation in an earlier year, OR 10 times the taxpayer’s adjusted basis in the stock of that corporation. The gain that qualifies for exclusion is allocated equally between spouses filing joint returns.
Stock Disqualification
Generally, stock will not be treated as small business stock if:
-
The issuing corporation directly or indirectly purchased any of its stock from the shareholder (or party related to the shareholder as defined in §267(b) or §707(b)), anytime during the period beginning two years before or after the stock issue date, or
-
During the two-year period that starts on the date that is one year before the stock is issued, the issuing corporation purchased some of its own stock at the beginning of the two-year period.
Transfers of Small Business Stock By Gift or Bequest
Such stock received as a gift or inheritance does not lose its character as small business stock. The transferee picks up the transferor’s holding period in the stock.