Section 1202 QSBS tax exclusion has changed three times since it was first enacted in 1993. Currently, the exclusion is 100%. Below is a detailed table that lays out the exclusion and effective tax rate on QSBS capital gains.

Calculations for the above table:

  1. Before February 17, 2009
    1. 50% x (28% + 3.8%) = 15.90%
    1. 15.90% + 0.98% (50% x 7% x 8%) = 16.88%
  2. Before September 28, 2010, but after February 17, 2009
    1. 75% x (28% + 3.8%) = 7.95%
    2. 7.95% + 1.47% (75% x 7% x 8%) = 9.42%
  3. After September 27, 2010
    1. Any gain above the tax exclusion cap is taxed at 31.8% (28% + 3.8%)

* 28% is the highest capital gains rate taxed used to tax the non-excluded portion of the QSBS gain

** 3.8% is NIIT

*** 7% of the excluded gain is taxed at 28% as a preferential item for AMT

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