Rachael purchased 500 shares of Qualified Small Business Stock (QSB) for $900,000 on March 2, 2009. On November 29, 2018, she sells the stock for $1,000,000. Rachael also sells 100 shares of stock she acquired two years ago realizing a loss of $10,000. Which of the following explain(s) tax consequences of the QSB stock sale?
I.The effective tax rate applied to the net gain on the sale of the QSB stock is 15%.
II.Rachael nets her $10,000 loss with her $100,000 gain after applying her exclusion rate.
III.Rachael is eligible for a 75% exclusion of the gain from the QSB stock sale.
IV.The QSB stock is QSB stock partly because Rachael held the stock for the required 3-year minimum.

Question

Rachael purchased 500 shares of Qualified Small Business Stock (QSB) for $900,000 on March 2, 2009. On November 29, 2018, she sells the stock for $1,000,000. Rachael also sells 100 shares of stock she acquired two years ago realizing a loss of $10,000. Which of the following explain(s) tax consequences of the QSB stock sale?
I.The effective tax rate applied to the net gain on the sale of the QSB stock is 15%.
II.Rachael nets her $10,000 loss with her $100,000 gain after applying her exclusion rate.
III.Rachael is eligible for a 75% exclusion of the gain from the QSB stock sale.
IV.The QSB stock is QSB stock partly because Rachael held the stock for the required 3-year minimum.
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Quizplus · Accepted Answer

Rachael is eligible for a 100% exclusion of the gain on the sale of QSB stock because she acquired the stock after February 17, 2009, and held it for more than 5 years. Therefore, statement III is incorrect as it mentions a 75% exclusion, which does not apply in this case. The effective tax rate and the specifics of netting losses against gains are not directly related to the unique tax benefits of QSB stock, making statements I and II incorrect. Statement IV is incorrect because the required holding period for QSB stock to qualify for exclusion is more than 5 years, not 3.

Rachael Purchased 500 Shares of Qualified Small Business Stock (QSB)