As a result, taxpayers subject to the AMT generally did not realize much, if any, tax benefit using the QSBS exclusion, as the net income tax at a 28% tax rate on the portion of the QSBS gain included for federal tax purposes, versus the AMT rate on a portion of excluded gain
being added back, was substantially similar on a net basis.
Furthermore, none of the excluded gain
is subject to the alternative minimum tax.
The IRS concluded in a Chief Counsel Advice memo (CCA) that excluded gain
from the sale of a former principal residence that was converted to rental property is not an item of passive activity gross income and, as such, does not offset any suspended passive losses upon disposition of the property.
MAGI does not include tax-exempt income, excluded gain
on the sale of a principal residence, or veteran's benefits.
In addition, the taxpayer cannot have excluded gain
on the sale of another principal residence within two years.
In determining the replacement business property's basis, excluded gain
is treated as gain recognized by the taxpayer.
The following policy changes were deemed necessary: (1) help the socially excluded gain
social inclusion by improving their conditions; (2) use education and training to prevent social exclusion; (3) prepare social policies to protect people from and prevent social exclusion; (4) improve existing policies on social exclusion; and (5) plan concrete measures to combat social exclusion.
The excluded gain
under section 121 can be included in the basis of the replacement property.
Further, a portion of the excluded gain
is a tax preference item, so the benefit of the exclusion may be further reduced; for QSB stock sales or exchanges after May 5, 2003, 7% of the excluded gain
is deemed a tax preference item and added back to taxable income in calculating alternative minimum taxable income.
For purposes of IRC section 1034, this permits the taxpayer to retain that portion of the proceeds representing the excluded gain
under IRC section 121 without reinvestment in qualifying replacement property.
121(c), a reduced maximum exclusion is available if a taxpayer sold or exchanged property owned and used as his principal residence for less than two of the preceding five years or excluded gain
on a principal residence within the preceding two years.
1031: Because the $245,000 excluded gain
exceeds the $10,000 boot received, the entire $10,900 post-exclusion realized gain is deferred (i.