Nevada does not have a state income tax for individuals; therefore, if you receive capital gains in Nevada there is no tax regardless if Section 1202 100% tax exclusion on capital gains from the sale of QSBS applies. Capital gains on the sale of QSBS will not only be excluded from federal income taxes but also state income taxes if all of the guidelines are followed.
Federal QSBS Exclusions and State Tax Implications
Allowing capital gains tax exclusions for Qualified Small Business Stocks (QSBS) encourages investment in US small business. QSBS laws help provide capital for these businesses while offering a savvy tax strategy for investors who want to minimize capital gains taxes.
Investors who hold qualified small business stock for at least 5 years can exclude up to $10,000,000 or more of their recognized capital gains from their taxable income if certain criteria are met.
Learn more about the criteria for Qualified Small Business Stock.
Each state has its own treatment of QSBS gains at the state income tax level. There are three ways in which states typically address the exclusion.
- Some states fully conform to the Federal QSBS guidelines, and therefore allow a full exemption if the stock meets the Section 1202 QSBS criteria. States conform to the federal tax code on either a static or rolling basis. “Static” conformity means the state starts conforming to the Internal Revenue Code as of a specific date. “Rolling” conformity means that the state adopts IRC changes as they occur. Alternatively, certain states do not have state income taxes and therefore there is no QSBS implication at the state level.
- Some states partially conform to the Federal QSBS guidelines, whereby the capital gains from QSBS are exempt if additional criteria beyond the Federal guidelines are met, such as only allowing exemptions if the QSBS gains were from a company doing business in that state.
- Lastly, certain states do not allow any capital gains exclusions for QSBS.
Find out how QSBS is recognized by each state here.
Nevada QSBS Exemptions
Nevada does not have a state income tax for individuals; therefore, if you receive capital gains in Nevada there is no tax regardless if Section 1202 100% tax exclusion on capital gains from the sale of QSBS applies. Capital gains on the sale of QSBS will not only be excluded from federal income taxes but also state income taxes if all of the guidelines are followed.
Entrepreneurship in Nevada
The state of Nevada Department of Business and Industry offers a business resource center, a comprehensive collection of resources available to entrepreneurs and business owners in the state.
The Lieutenant Governor has an Entrepreneurial Task Force which addresses the needs of the startup and small business community by increasing collaboration, outlining best practices, and monitoring legislation and its effect on the entrepreneurial ecosystem.
Ideagist has a comprehensive list of incubators and accelerators in the state of Nevada.
Among other industries, the following industries in particular thrive in the state:
- Aerospace and Defense
- Health
- Information Technology
- Manufacturing and Logistics
- Mining
- Natural Resource Technology
- Tourism and Gaming
State Programs that Benefit Small Businesses
The state of Nevada offers the New Market Tax Credit (NMTC) program which,
“helps Nevada businesses and nonprofit organizations gain access to gap funding to support businesses located in economically distressed communities. The NMTC program has developed a public-private partnership to attract private investment on terms that may otherwise be unavailable to these communities.”
Nevada Opportunity Zones
Nevada is home to approximately 61 Opportunity Zones.
Opportunity Zones (OZ) were created to help economically distressed areas by giving investors preferential tax treatment with new investments in these “specified” areas. Similar to QSBS, if the investment meets eligibility criteria and is held for at least 5 years, the investor can defer or be exempted from capital gains taxes (i.e. if held for at least 5 years, the taxpayer can exclude 10% of the gain and the percentage increases (or “steps up”) to 15% after 7 years).
Opportunity Zone investments can be in the stock of an OZ Qualified Business, an OZ partnership interest or an OZ business property.
To be a Qualified Opportunity Zone Business, the business must meet requirements such as at least 50% of the business’s total gross income being derived from within the Opportunity Zone. To learn more about Opportunity Zone qualifications, please refer to the Opportunity Zones and QSBS article.
Under the Tax Cuts and Jobs Act of 2017, 26 USC 1400Z-2, Nevada made Opportunity Zones, is also home to the associated tax relief incentives that accompany these zones which are effective for tax years beginning on or after December 31, 2017. Refer to this map for the Opportunity Zones in the state and here for all Opportunity Zones in the United States.
Some Examples of Nevada Opportunity Zone Funds include:
- Shopoff DLV QOZ Fund (Hotel)
- Agora Realty Opportunity Zone Fund (Industrial, Multi-Family Housing)
- Alliant Strategic Opportunity Zone Fund I, LLC (Affordable Housing, Mixed-Use, Workforce Housing)
See more at the Opportunity Zone Database.
This article does not constitute legal or tax advice. Please consult with your legal or tax advisor with respect to your particular circumstance.
