Massachusetts does allow the section 1202 100% tax exclusion on capital gains from the sale of QSBS with modifications. The state follows the same qualified small business guidelines, but the business must be incorporated on or after January 1, 2011 and stock must be acquired within five years of the businesses incorporation. Also the state follows the same investor guidelines and guidelines for after the stock is acquired, except the holding period for Massachusetts is three years not five. If the guidelines are followed the capital gains will be taxed at a rate of 3% instead of the states capital gains tax of 5.2%. Therefore, capital gains on the sale of QSBS will not only be excluded from federal income taxes, but also taxed at a lower rate for state income taxes if all of the guidelines are followed.
Mass. Gen. LawsAnn. ch. 62, § 4
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