Section 1202 lets non-corporate shareholders exclude up to 100 percent of the gain on qualified small business stock held more than five years, subject to a cap of the greater of 10 million dollars or ten times basis.
The corporation must be a domestic C corporation with gross assets under a set limit when the stock was issued, engaged in an active qualified business. Recent legislation adjusted the holding period tiers and asset limits for stock issued after its effective date; confirm the rules for the issue date of your shares.
Why it matters: the exclusion is large enough that founders often want a written opinion confirming eligibility before a sale. See tax opinion letters.
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