The Protecting Americans from Tax Hikes (PATH) Act of 2015, which was signed into law in December 2015, made permanent the exclusion of 100 percent of the gain on the sale or exchange of Qualified Small Business Stock (QSBS) meeting certain requirements and subject to taxpayer limitations.
Specifically, Section 126 of the PATH Act made permanent what is commonly known as Section 1202. This exclusion of gain applies to the computation and payment of all federal income taxes including the 3.8% “Medicare” tax on net investment income and the alternative minimum tax.
These changes should excite angel investors because they make it possible to improve the overall after-tax returns on their investment portfolios.
Before the passing of the PATH Act, the §1202 exclusion percentage for QSBS acquired after December 31, 2014, reverted to the reduced exclusion amount of 50 percent and the AMT tax preference add back had been reinstated.