QSBS purchased on or after September 28, 2010, is 100% excluded from capital gains taxes, net investment income taxes (NIIT), and alternative minimum taxes (AMT) as long as the QSBS gains do not exceed the exclusion cap. Gains over the exclusion cap will be subject NIIT and will be included in the income used to calculate AMT.
QSBS purchased before September 28, 2010, is subject to AMT and NIIT. The reason it is subject NIIT is that the QSBS gain is not fully excludable (e.g. 50% or 75%). The portion of the gain not excluded will be taxed at the NIIT rate of 3.8%. For AMT, 7% of the excluded gain is included in AMT income as a preferential item and the non-excluded portion will be included in income for the AMT calculation. For example, the QSBS gain is $100k with a 50% capital gains tax exclusion; therefore, the 50% not excluded will be taxed at the highest capital gains tax rate of 28% + 3.8% of NIIT (50k x 31.8% = $15.9k) and 7% of the excluded portion will be taxed at 28% ($50k x 7% x 28% = 980).
This article does not constitute legal or tax advice. Please consult with your legal or tax advisor with respect to your particular circumstance.
