Code Section 1202
| Code Section | Effective Date | Name of Act | Name of Provision | 10yr Revenue Estimate ($millions) |
|---|---|---|---|---|
| 1202, 1391 | **12/31/2011 | The American Taxpayer Relief Act of 2012 | Empowerment zone tax incentives | -450 |
| 1202 | ***12/31/2011 | The American Taxpayer Relief Act of 2012 | Exclusion of 100 percent of gain on certain small business stock | -954 |
| 1202 | 12/31/2010 | The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 | Temporary exclusion of 100 percent of gain on certain small business stock | -1,445 |
| 1202 | *9/27/2010 | The Small Business Jobs Act of 2010 | Temporary exclusion of 100 percent of gain on certain small business stock | -518 |
| 1202, 1391 | **12/31/2009 | The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 | Empowerment zone tax incentives | -387 |
| 1202 | Between 2/17/2009 and 1/1/2011 | The American Recovery and Reinvestment Act of 2009 (Public Law 111-5) | Special rules applicable to qualified small business stock for 2009 and 2010 | -829 |
* Notes on Effective Date
The provision is effective for stock issued after the date of enactment (September 27, 2010) and before January 1, 2011.
** Notes on Effective Date
The provision relating to the designation of an empowerment zone and the provision relating to the exclusion of gain from the sale or exchange of qualified small business stock held for more than five years applies to periods after the effective date.
**Notes On Effective Date
The provision is generally effective for stock acquired after December 31, 2011. The clarification applies to stock acquired after February 17, 2009.
Empowerment zone tax incentives
Explanation of Provision
The provision extends for two years, through December 31, 2013, the period for which the designation of an empowerment zone is in effect, thus extending for two years the empowerment zone tax incentives, including the wage credit, increased section 179 expensing for qualifying equipment, tax-exempt bond financing, and deferral of capital gains tax on sale of qualified assets replaced with other qualified assets.534 In the case of a designation of an empowerment zone the nomination for which included a termination date which is December 31, 2011, termination shall not apply with respect to such designation if the entity which made such nomination amends the nomination to provide for a new termination date in such manner as the Secretary may provide.
The provision extends for two years, through December 31, 2018, the period for which the percentage exclusion for qualified small business stock (of a corporation which is a qualified business entity) acquired on or before February 17, 2009 is 60 percent. Gain attributable to periods after December 31, 2018 for qualified small business stock acquired on or before February 17, 2009 or after December 31, 2013 is subject to the general rule which provides for a percentage exclusion of 50 percent.
Exclusion of 100 percent of gain on certain small business stock
Explanation of Provision
The provision extends the 100-percent exclusion and the exception from minimum tax preference treatment for two years (for stock acquired before January 1, 2014).489
The provision clarifies that in the case of any qualified small business stock acquired (determined without regard to the tackedholding period) after February 17, 2009, and before January 1,2014, the date of acquisition for purposes of determining the exclusion percentage is the date the holding period for the stock begins.490 Thus, for example, if an individual (i) acquires qualified small business stock at its original issue for $1 million on July 1, 2006, (ii) sells the stock on March 1, 2012, for $2 million in a transaction in which gain is not recognized by reason of section 1045, (iii) acquires qualified replacement stock at its original issue on March 15, 2012, for $2 million, and (iv) sells the replacement stock for $3 million, 50 percent (and not 100 percent) of the $2 million gain on the sale of the replacement stock is excluded from gross income.491
Temporary exclusion of 100 percent of gain on certain small business stock
Explanation of Provision
The provision extends the 100-percent exclusion and the exception from minimum tax preference treatment for one year (for stock acquired before January 1, 2012).
Temporary exclusion of 100 percent of gain on certain small business stock
Explanation of Provision 1318
Under the provision, the percentage exclusion for qualified small business stock acquired during 2010 is increased to 100 percent and the minimum tax preference does not apply. Thus, no regular tax or alternative minimum tax is imposed on the sale of this stock held at least five years.
Empowerment zone tax incentives
Explanation of Provision
The provision extends for two years, through December 31, 2011, the period for which the designation of an empowerment zone is in effect, thus extending for two years the empowerment zone tax incentives, including the wage credit, accelerated depreciation deductions on qualifying equipment, tax-exempt bond financing, and deferral of capital gains tax on sale of qualified assets sold and replaced. In the case of a designation of an empowerment zone the nomination for which included a termination date which is December 31, 2009, termination shall not apply with respect to such designation if the entity which made such nomination amends the nomination to provide for a new termination date in such manner as the Secretary may provide.
The provision extends for two years, through December 31, 2016, the period for which the percentage exclusion for qualified small business stock (of a corporation which is a qualified business entity) acquired on or before February 17, 2009 is 60 percent. Gain attributable to periods after December 31, 2016 for qualified small business stock acquired on or before February 17, 2009 or after December 31, 2011 is subject to the general rule which provides for a percentage exclusion of 50 percent.
Special rules applicable to qualified small business stock for 2009 and 2010
Explanation of Provision151
Under the Act, the percentage exclusion for qualified small business stock sold by an individual is increased from 50 percent (60 percent for certain empowerment zone businesses) to 75 percent. As a result of the increased exclusion, gain from the sale of qualified small business stock to which the provision applies is taxed at effective rates of seven percent under the regular tax 152 and 12.88 percent under the alternative minimum tax.153
489- Section 102 of the Act makes permanent the seven-percent minimum tax preference amount for qualified small business stock acquired before September 28, 2010
-Return to Explanation of Provision
490- The provision is not intended to change the acquisition date determined under section 1202(i)(1)(A) for certain stock exchanged for property.
-Return to Explanation of Provision
491- This example assumes all the requirements of section 1202 are met with respect to the original stock and the replacement stock
-Return to Explanation of Provision
151- The provision was subsequently modified to provide a 100-percent exclusion for stock issued after September 27, 2010, and before January 1, 2011 by section 2011 of the Small Business Jobs Act of 2010, Pub. L. No. 111–240, described in Part Fourteen. The provision was subsequently extended to stock issued during 2011 by section 760 of Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, Pub. L. No. 111–312, described in Part Sixteen of this document.
-Return to Explanation of Provision
152- The 25 percent of gain included in taxable income is taxed at a maximum rate of 28 percent.
-Return to Explanation of Provision
153- The 46 percent of gain included in alternative minimum tax is taxed at a maximum rate of 28 percent. Forty-six percent is the sum of 25 percent (the percentage of total gain included in taxable income) plus 21 percent (the percentage of total gain which is an alternative minimum tax preference).
-Return to Explanation of Provision
534- A technical correction may be necessary to clarify that the elective rollover provision applies to qualified empowerment zone assets acquired after December 21, 2000 and before January 1, 2014
-Return to Explanation of Provision
1318- The provision was subsequently amended by section 760 of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, Pub. L. No. 111–312, described in Part Sixteen.
-Return to Explanation of Provision