If you sell qualified small business stock, you may be able to roll over your gain tax free or exclude part of the gain from your income. Qualified small business stock is stock issued by a qualified small business after August 10, 1993, that meets certain tests.

Rollover of gain. You can choose to roll over a capital gain from the sale of qualified small business stock held longer than 6 months into other qualified small business stock. This choice is not allowed to C corporations. If you make this choice, the gain from the sale is recognized only to the extent the amount realized is more than the cost of the other qualified small business stock bought within 60 days of the date of sale. You must reduce your basis in the other qualified small business stock by the gain not recognized.

Exclusion of gain. You may be able to exclude from your gross income one-half your gain from the sale or exchange of qualified small business stock held by you longer than 5 years. This exclusion is not allowed to C corporations. Different rules apply when the stock is held by a partnership, S corporation, regulated investment company, or common trust fund.

Your gain from the stock of any one issuer eligible for the exclusion is limited to the greater of the following amounts.

1. Ten times your basis in all qualified stock of the issuer you sold or exchanged during the year.
2. $10 million ($5 million for married individuals filing separately) minus the gain from the stock of the same issuer you used to figure your exclusion in earlier years.

More information. For more information on sales of small business stock, see chapter 4 of Publication 550.

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