What is a qualified small business (QSB) stock?

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What is a qualified small business (QSB) stock?

Qualified Small Business (QSB) stock describes a few specific stock types that come with special tax benefits. 

The gain (or loss) from the sale of certain stocks may get special treatment depending on:  

  • The type of stock sold
  • Whether the stock was sold at a gain or a loss
  • Proceeds from the sale 

 The sale of your stock may qualify as a QSB if you:

  • Bought stock in a small business when it was first issued
  • Sold stock to an Employee Stock Ownership Plan (ESOP) or Eligible Worker-Owned Cooperative (EWOC) plan

Yes, you may be able to postpone paying income tax on the sale  if you used the proceeds to purchase other qualified small business stock under Section 1045. If you didn’t buy other qualified stock, you may qualify to treat 50%, 60%, 75%, or 100% of the gain as tax-free under Section 1202 if you held the stock for longer than five years.

The stock bought under these terms must meet the following requirements:

  •  The replacement stock is purchased within 60 days of selling the old stock
  •  The stock is from a US corporation 
  •  The stock was purchased during original issue
  •  The company is a specialized small business investment company (SSBIC), or at least 80 percent of the company's assets are used to conduct a qualified active business

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