How to reproduce this:
1. Start with a fresh return, single filer
2. Add a long-term capital gain sale X: bought 1/1/2000, sold 1/1/2018 for $1,000,000, basis 0
3. Add a short-term capital gain sale Y: bought 7/1/2017, sold 1/1/2018 for $50,000, basis 0
4. Add a long-term capital gain sale Z: bought 1/1/2000, sold 1/1/2018 for $1,000, basis 0
5. The tax due shows as $233,388. This is correct to my knowledge.
6. Now, for the Z $1,000 sale, select it as a qualified small business stock sale (section 1202). 50% of the gain is shown as excluded.
7. But the tax due now shows as $233,409. <-- BUG! Tax goes up after the exclusion.
Why do I think this is a bug? 50% of the gain was excluded correctly from long-term capital gains (and correctly added as 7% preference item in AMT), but in the "Schedule D tax worksheet" an extra 50% of the gain ($500) is added in to line 19, which is taxed at short-term capital gains (ordinary income) rate. So it honored the 50% exclusion but it seems to have put the other 50% into the ordinary income which I claim is wrong.
I can't think of any reason in the tax code why excluding 50% of a long-term capital gain should result in an additional short-term capital gain.
This miscalculation happens only when there are both non-QSBS long-term and short-term gains present AND when the QSBS transaction is from the 50% exclusion date range. For example, if the QSBS transaction is entered as bought 1/1/2012 then the correct 100% exclusion is applied and the tax shows as $233,143.
Version: Deluxe windows download, tax year 2018
