If a taxpayer’s capital gains exceed the QSBS limitations, the gain above the limitation will be subject to capital gains taxes at a maximum rate of 28%.
Additionally, the additional gains could be subject to Net Investment Income Tax (NIIT) of 3.8% for high earning taxpayers.
As an example, ABC, Inc. issued $2 million of QSBS eligible stock to an investor. After holding the stock for at least five years, ABC was acquired. The investor sold their stock during the transaction for sale proceeds of $25 million, for a $23 million capital gain.
The limitation is $20 million, based on the greater of $10 million and 10x the investor’s basis. Therefore, the first $20 million of the gain is excluded and the additional $3 million gain is subject to capital gains taxes.
This article does not constitute legal or tax advice. Please consult with your legal or tax advisor with respect to your particular circumstance.