In 2001, Mrs. Qualley, contributed $100,000 in exchange for 1,000 shares of Little Corporation, which is a qualified small business. This year, Mrs. Qualley's only capital transaction was the sale of the 1,000 shares of Little qualified small business stock for $180,000. Compute Mrs. Qualley's tax on her capital gain from this sale.

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Mrs. Qualley's capital gain is $80,000 ($180,000 - $100,000). Since she held the qualified small business stock for more than 5 years, she is eligible for a 50% exclusion of the gain, leaving a taxable amount of $40,000. The tax on this amount at the maximum 28% capital gain rate is $11,200.