Most of the focus of the American Taxpayer Relief Act of 2012 (the “Act”) was on avoiding the fiscal cliff and the related increases in tax rates for most higher income taxpayers. One provision that has largely been overlooked is the extension of the “temporary” elimination of capital gains tax on sales of certain corporate stock. The same provisions (under Code Section 1202) had been in effect for part of 2010 and all of 2011, but had not been available for stock purchased on or after January 1, 2012. The Act not only extended this benefit through the end of 2013, but retroactively made it effective for all of 2012.
Under this provision, noncorporate taxpayers can exclude 100 percent of the gain realized on the sale of qualified small business stock (QSB Stock) acquired after September 27, 2010 and before January 1, 2014, and held for more than five years. No AMT preference will be applicable to the gain on the sale of QSB Stock, nor will the 3.8 percent Medicare tax on investment income of higher income taxpayers be imposed. Therefore, for QSB Stock issued between September 27, 2010 and the end of this year, there will be no federal tax of any kind imposed on the sale of QSB Stock if it is held for five years.