---
kind: "section"
citation: "26 U.S.C. § 1202"
title: "26"
title_heading: "Internal Revenue Code"
number: "1202"
heading: "Partial exclusion for gain from certain small business stock"
release: "119-102"
date: "2026-07-12"
url: "https://uscodex.org/usc/26/1202"
units:
  - "Subtitle A — Income Taxes"
  - "Chapter 1 — Normal Taxes and Surtaxes"
  - "Subchapter P — Capital Gains and Losses"
  - "Part I — Treatment of Capital Gains"
---

# §1202. Partial exclusion for gain from certain small business stock

- (a) **Exclusion—**
  - (1) **In general—** In the case of a [taxpayer](/usc/26/1313.md?p=b) other than a corporation, gross income shall not include—
    - (A) except as provided in paragraphs [(3)](#a-3) and [(4)](#a-4), 50 percent of any gain from the [sale or exchange](/usc/26/864.md?p=c-8-D) of qualified small business [stock](/usc/26/1504.md?p=a-4) acquired on or before the [applicable date](/usc/26/1361.md?p=c-1-B-iii) and held for more than 5 years, and
    - (B) the [applicable percentage](/usc/26/414.md?p=l-2-B) of any gain from the [sale or exchange](/usc/26/864.md?p=c-8-D) of qualified small business [stock](/usc/26/1504.md?p=a-4) acquired after the [applicable date](/usc/26/1361.md?p=c-1-B-iii) and held for at least 3 years.
  - (2) **Empowerment zone businesses—**
    - (A) **In general—** In the case of qualified small business [stock](/usc/26/1504.md?p=a-4) acquired after the date of the enactment of this paragraph in a corporation which is a [qualified business entity](/usc/26/1397C.md?p=b) (as defined in [section 1397C(b)](/usc/26/1397C.md?p=b)) during substantially all of the [taxpayer](/usc/26/1313.md?p=b)’s holding period for such [stock](/usc/26/1504.md?p=a-4), [paragraph (1)](#a-1) shall be applied by substituting “60 percent” for “50 percent”.
    - (B) **Certain rules to apply—** Rules similar to the rules of paragraphs (5) and (7) of section 1400B(b) (as in effect before its repeal) shall apply for purposes of this paragraph.
    - (C) **Gain after 2018 not qualified—** [Subparagraph (A)](#a-2-A) shall not apply to gain attributable to periods after December 31, 2018.
    - (D) **Treatment of DC zone—** The District of Columbia Enterprise Zone shall not be treated as an [empowerment zone](/usc/26/1393.md?p=b) for purposes of this paragraph.
  - (3) **Special rules for 2009 and certain periods in 2010—** In the case of qualified small business [stock](/usc/26/1504.md?p=a-4) acquired after the date of the enactment of this paragraph and on or before the date of the enactment of the Creating Small Business Jobs Act of 2010—
    - (A) [paragraph (1)(A)](#a-1-A) shall be applied by substituting “75 percent” for “50 percent”, and
    - (B) [paragraph (2)](#a-2) shall not apply.

    In the case of any [stock](/usc/26/1504.md?p=a-4) which would be described in the preceding sentence (but for this sentence), the acquisition date for purposes of this subsection shall be the first day on which such [stock](/usc/26/1504.md?p=a-4) was held by the [taxpayer](/usc/26/1313.md?p=b) determined after the application of section 1223.

  - (4) **100 percent exclusion for stock acquired during certain periods in 2010 and thereafter—** In the case of qualified small business [stock](/usc/26/1504.md?p=a-4) acquired after the date of the enactment of the Creating Small Business Jobs Act of 2010 and on or before the [applicable date](/usc/26/1361.md?p=c-1-B-iii)—
    - (A) [paragraph (1)(A)](#a-1-A) shall be applied by substituting “100 percent” for “50 percent”,[^1]
    - (B) [paragraph (2)](#a-2) shall not apply.

    In the case of any [stock](/usc/26/1504.md?p=a-4) which would be described in the preceding sentence (but for this sentence), the acquisition date for purposes of this subsection shall be the first day on which such [stock](/usc/26/1504.md?p=a-4) was held by the [taxpayer](/usc/26/1313.md?p=b) determined after the application of section 1223.

  - (5) **Applicable percentage—** The [applicable percentage](/usc/26/414.md?p=l-2-B) under [paragraph (1)](#a-1) shall be determined under the following table:

    | Years [stock](/usc/26/1504.md?p=a-4) held: | Applicable<br>percentage: |
    | --- | --- |
    | 3 years | 50% |
    | 4 years | 75% |
    | 5 years or more | 100% |

  - (6) **Applicable date; acquisition date—** For purposes of this section—
    - (A) **Applicable date—** The term “[applicable date](/usc/26/1361.md?p=c-1-B-iii)” means the date of the enactment of this paragraph.
    - (B) **Acquisition date—** In the case of any [stock](/usc/26/1504.md?p=a-4) which would (but for this paragraph) be treated as having been acquired before, on, or after the [applicable date](/usc/26/1361.md?p=c-1-B-iii), whichever is applicable, the acquisition date for purposes of this section shall be the first day on which such [stock](/usc/26/1504.md?p=a-4) was held by the [taxpayer](/usc/26/1313.md?p=b) determined after the application of section 1223.
- (b) **Per-issuer limitation on taxpayer’s eligible gain—**
  - (1) **In general—** If the [taxpayer](/usc/26/1313.md?p=b) has eligible gain for the taxable year from 1 or more [dispositions](/usc/26/424.md?p=c-1) of [stock](/usc/26/1504.md?p=a-4) issued by any corporation, the aggregate amount of such gain from [dispositions](/usc/26/424.md?p=c-1) of [stock](/usc/26/1504.md?p=a-4) issued by such corporation which may be taken into account under [subsection (a)](#a) for the taxable year shall not exceed the greater of—
    - (A) the applicable dollar limit for the taxable year, or
    - (B) 10 times the aggregate adjusted bases of qualified small business [stock](/usc/26/1504.md?p=a-4) issued by such corporation and disposed of by the [taxpayer](/usc/26/1313.md?p=b) during the taxable year.

    For purposes of [subparagraph (B)](#b-1-B), the adjusted basis of any [stock](/usc/26/1504.md?p=a-4) shall be determined without regard to any addition to basis after the date on which such [stock](/usc/26/1504.md?p=a-4) was originally issued.

  - (2) **Eligible gain—** For purposes of this subsection, the term “eligible gain” means any gain from the [sale or exchange](/usc/26/864.md?p=c-8-D) of qualified small business [stock](/usc/26/1504.md?p=a-4) held for at least 3 years (more than 5 years in the case of [stock](/usc/26/1504.md?p=a-4) acquired on or before the [applicable date](/usc/26/1361.md?p=c-1-B-iii)).
  - (3) **Treatment of married individuals—**
    - (A) **Separate returns—** In the case of a separate return by a married individual for any taxable year—
      - (i) [paragraph (4)(A)](#b-4-A) shall be applied by substituting “$5,000,000” for “$10,000,000”, and
      - (ii) [paragraph (4)(B)](#b-4-B) shall be applied by substituting one-half of the dollar amount in effect under such paragraph for the taxable year for the amount so in effect.
    - (B) **Allocation of exclusion—** In the case of any [joint return](/usc/26/62.md?p=b-3-D), the amount of gain taken into account under [subsection (a)](#a) shall be allocated equally between the spouses for purposes of applying this subsection to subsequent taxable years.
    - (C) **Marital status—** For purposes of this subsection, marital status shall be determined under section 7703.
  - (4) **2 Applicable dollar limit—** For purposes of [paragraph (1)(A)](#b-1-A), the applicable dollar limit for any taxable year with respect to eligible gain from 1 or more [dispositions](/usc/26/424.md?p=c-1) by a [taxpayer](/usc/26/1313.md?p=b) of [qualified business](/usc/26/1397C.md?p=d-1) [stock](/usc/26/1504.md?p=a-4) of a corporation is—
    - (A) if such [stock](/usc/26/1504.md?p=a-4) was acquired by the [taxpayer](/usc/26/1313.md?p=b) on or before the [applicable date](/usc/26/1361.md?p=c-1-B-iii), $10,000,000, reduced by the aggregate amount of eligible gain taken into account by the [taxpayer](/usc/26/1313.md?p=b) under [subsection (a)](#a) for prior taxable years and attributable to [dispositions](/usc/26/424.md?p=c-1) of [stock](/usc/26/1504.md?p=a-4) issued by such corporation and acquired by the [taxpayer](/usc/26/1313.md?p=b) before, on, or after the [applicable date](/usc/26/1361.md?p=c-1-B-iii), and
    - (B) if such [stock](/usc/26/1504.md?p=a-4) was acquired by the [taxpayer](/usc/26/1313.md?p=b) after the [applicable date](/usc/26/1361.md?p=c-1-B-iii), $15,000,000, reduced by the sum of—
      - (i) the aggregate amount of eligible gain taken into account by the [taxpayer](/usc/26/1313.md?p=b) under [subsection (a)](#a) for prior taxable years and attributable to [dispositions](/usc/26/424.md?p=c-1) of [stock](/usc/26/1504.md?p=a-4) issued by such corporation and acquired by the [taxpayer](/usc/26/1313.md?p=b) before, on, or after the [applicable date](/usc/26/1361.md?p=c-1-B-iii), plus
      - (ii) the aggregate amount of eligible gain taken into account by the [taxpayer](/usc/26/1313.md?p=b) under [subsection (a)](#a) for the taxable year and attributable to [dispositions](/usc/26/424.md?p=c-1) of [stock](/usc/26/1504.md?p=a-4) issued by such corporation and acquired by the [taxpayer](/usc/26/1313.md?p=b) on or before the [applicable date](/usc/26/1361.md?p=c-1-B-iii).
  - (5) **Inflation adjustment—**
    - (A) **In general—** In the case of any taxable year beginning after 2026, the $15,000,000 amount in [paragraph (4)(B)](#b-4-B) shall be increased by an amount equal to—
      - (i) such dollar amount, multiplied by
      - (ii) the cost-of-living adjustment determined under [section 1(f)(3)](/usc/26/1.md?p=f-3) for the calendar year in which the taxable year begins, determined by substituting “calendar year 2025” for “calendar year 2016” in [subparagraph (A)(ii)](#b-5-A-ii) thereof.

      If any increase under this subparagraph is not a multiple of $10,000, such increase shall be rounded to the nearest multiple of $10,000.

    - (B) **No increase once limit reached—** If, for any taxable year, the eligible gain attributable to [dispositions](/usc/26/424.md?p=c-1) of [stock](/usc/26/1504.md?p=a-4) issued by a corporation and acquired by the [taxpayer](/usc/26/1313.md?p=b) after the [applicable date](/usc/26/1361.md?p=c-1-B-iii) exceeds the applicable dollar limit, then notwithstanding any increase under [subparagraph (A)](#b-5-A) for any subsequent taxable year, the applicable dollar limit for such subsequent taxable year shall be zero.
  - (4) **2 Inflation adjustment—** In the case of any taxable year beginning after 2026, the $75,000,000 amounts in paragraphs [(1)(A)](#b-1-A) and [(1)(B)](#b-1-B) shall each be increased by an amount equal to—
    - (A) such dollar amount, multiplied by
    - (B) the cost-of-living adjustment determined under [section 1(f)(3)](/usc/26/1.md?p=f-3) for the calendar year in which the taxable year begins, determined by substituting “calendar year 2025” for “calendar year 2016” in subparagraph (A)(ii) thereof.

    If any increase under this paragraph is not a multiple of $10,000, such increase shall be rounded to the nearest multiple of $10,000.

- (c) **Qualified small business stock—** For purposes of this section—
  - (1) **In general—** Except as otherwise provided in this section, the term “qualified small business [stock](/usc/26/1504.md?p=a-4)” means any [stock](/usc/26/1504.md?p=a-4) in a [C corporation](/usc/26/1361.md?p=a-2) which is originally issued after the date of the enactment of the Revenue Reconciliation Act of 1993, if—
    - (A) as of the date of issuance, such corporation is a qualified small business, and
    - (B) except as provided in subsections [(f)](#f) and [(h)](#h), such [stock](/usc/26/1504.md?p=a-4) is acquired by the [taxpayer](/usc/26/1313.md?p=b) at its original issue (directly or through an underwriter)—
      - (i) in exchange for money or other [property](/usc/26/317.md?p=a) (not including [stock](/usc/26/1504.md?p=a-4)), or
      - (ii) as [compensation](/usc/26/414.md?p=n-5-C-iii) for services provided to such corporation (other than services performed as an underwriter of such [stock](/usc/26/1504.md?p=a-4)).
  - (2) **Active business requirement; etc.**
    - (A) **In general—** [Stock](/usc/26/1504.md?p=a-4) in a corporation shall not be treated as qualified small business [stock](/usc/26/1504.md?p=a-4) unless, during substantially all of the [taxpayer](/usc/26/1313.md?p=b)’s holding period for such [stock](/usc/26/1504.md?p=a-4), such corporation meets the active business requirements of [subsection (e)](#e) and such corporation is a [C corporation](/usc/26/1361.md?p=a-2).
    - (B) **Special rule for certain small business investment companies—**
      - (i) **Waiver of active business requirement—** Notwithstanding any provision of [subsection (e)](#e), a corporation shall be treated as meeting the active business requirements of such subsection for any period during which such corporation qualifies as a specialized small business [investment company](/usc/26/368.md?p=a-2-F-iii).
      - (ii) **Specialized small business investment company—** For purposes of [clause (i)](#c-2-B-i), the term “specialized small business [investment company](/usc/26/368.md?p=a-2-F-iii)” means any eligible corporation (as defined in [subsection (e)(4)](#e-4)) which is licensed to operate under section 301(d) of the Small Business Investment Act of 1958 (as in effect on May 13, 1993).
  - (3) **Certain purchases by corporation of its own stock—**
    - (A) **Redemptions from taxpayer or related person—** [Stock](/usc/26/1504.md?p=a-4) acquired by the [taxpayer](/usc/26/1313.md?p=b) shall not be treated as qualified small business [stock](/usc/26/1504.md?p=a-4) if, at any time during the 4-year period beginning on the date 2 years before the issuance of such [stock](/usc/26/1504.md?p=a-4), the corporation issuing such [stock](/usc/26/1504.md?p=a-4) purchased (directly or [indirectly](/usc/26/101.md?p=a-3-B)) any of its [stock](/usc/26/1504.md?p=a-4) from the [taxpayer](/usc/26/1313.md?p=b) or from a person related (within the meaning of section [267(b)](/usc/26/267.md?p=b) or [707(b)](/usc/26/707.md?p=b)) to the [taxpayer](/usc/26/1313.md?p=b).
    - (B) **Significant redemptions—** [Stock](/usc/26/1504.md?p=a-4) issued by a corporation shall not be treated as [qualified business](/usc/26/1397C.md?p=d-1) [stock](/usc/26/1504.md?p=a-4) if, during the 2-year period beginning on the date 1 year before the issuance of such [stock](/usc/26/1504.md?p=a-4), such corporation made 1 or more [purchases](/usc/26/1361.md?p=e-1-C) of its [stock](/usc/26/1504.md?p=a-4) with an aggregate [value](/usc/26/851.md?p=c-4) (as of the time of the respective [purchases](/usc/26/1361.md?p=e-1-C)) exceeding 5 percent of the aggregate [value](/usc/26/851.md?p=c-4) of all of its [stock](/usc/26/1504.md?p=a-4) as of the beginning of such 2-year period.
    - (C) **Treatment of certain transactions—** If any transaction is treated under [section 304(a)](/usc/26/304.md?p=a) as a distribution in redemption of the [stock](/usc/26/1504.md?p=a-4) of any corporation, for purposes of subparagraphs [(A)](#c-3-A) and [(B)](#c-3-B), such corporation shall be treated as purchasing an amount of its [stock](/usc/26/1504.md?p=a-4) equal to the amount treated as such a distribution under [section 304(a)](/usc/26/304.md?p=a).
- (d) **Qualified small business—** For purposes of this section—
  - (1) **In general—** The term “qualified small business” means any domestic corporation which is a [C corporation](/usc/26/1361.md?p=a-2) if—
    - (A) the aggregate gross assets of such corporation (or any predecessor thereof) at all times on or after the date of the enactment of the Revenue Reconciliation Act of 1993 and before the issuance did not exceed $75,000,000,
    - (B) the aggregate gross assets of such corporation immediately after the issuance (determined by taking into account amounts received in the issuance) do not exceed $75,000,000, and
    - (C) such corporation agrees to submit such reports to the Secretary and to shareholders as the Secretary may require to carry out the purposes of this section.
  - (2) **Aggregate gross assets—**
    - (A) **In general—** For purposes of [paragraph (1)](#d-1), the term “aggregate gross assets” means the amount of [cash](/usc/26/856.md?p=c-5-K) and the aggregate adjusted bases of other [property](/usc/26/317.md?p=a) held by the corporation.
    - (B) **Treatment of contributed property—** For purposes of [subparagraph (A)](#d-2-A), the adjusted basis of any [property](/usc/26/317.md?p=a) contributed to the corporation (or other [property](/usc/26/317.md?p=a) with a basis determined in whole or in part by reference to the adjusted basis of [property](/usc/26/317.md?p=a) so contributed) shall be determined as if the basis of the [property](/usc/26/317.md?p=a) contributed to the corporation (immediately after such contribution) were equal to its fair market [value](/usc/26/851.md?p=c-4) as of the time of such contribution.
  - (3) **Aggregation rules—**
    - (A) **In general—** All corporations which are members of the same parent-subsidiary [controlled group](/usc/26/414.md?p=l-2-D-v) shall be treated as 1 corporation for purposes of this subsection.
    - (B) **Parent-subsidiary controlled group—** For purposes of [subparagraph (A)](#d-3-A), the term “parent-subsidiary [controlled group](/usc/26/414.md?p=l-2-D-v)” means any [controlled group of corporations](/usc/26/993.md?p=a-3) as defined in [section 1563(a)(1)](/usc/26/1563.md?p=a-1), except that—
      - (i) “more than 50 percent” shall be substituted for “at least 80 percent” each place it appears in [section 1563(a)(1)](/usc/26/1563.md?p=a-1), and
      - (ii) [section 1563(a)(4)](/usc/26/1563.md?p=a-4) shall not apply.
- (e) **Active business requirement—**
  - (1) **In general—** For purposes of [subsection (c)(2)](#c-2), the requirements of this subsection are met by a corporation for any period if during such period—
    - (A) at least 80 percent (by [value](/usc/26/851.md?p=c-4)) of the assets of such corporation are used by such corporation in the active conduct of 1 or more qualified trades or businesses, and
    - (B) such corporation is an eligible corporation.
  - (2) **Special rule for certain activities—** For purposes of [paragraph (1)](#e-1), if, in connection with any future qualified [trade or business](/usc/26/1402.md?p=c), a corporation is engaged in—
    - (A) start-up activities described in [section 195(c)(1)(A)](/usc/26/195.md?p=c-1-A),
    - (B) activities resulting in the payment or incurring of expenditures which are treated as foreign research or experimental expenditures under [section 174](/usc/26/174.md) or domestic research or experimental expenditures under [section 174A](/usc/26/174A.md), or
    - (C) activities with respect to in-house research expenses described in [section 41(b)(4)](/usc/26/41.md?p=b-4),

    assets used in such activities shall be treated as used in the active conduct of a qualified [trade or business](/usc/26/1402.md?p=c). Any [determination](/usc/26/1313.md?p=a) under this paragraph shall be made without regard to whether a corporation has any gross income from such activities at the time of the [determination](/usc/26/1313.md?p=a).

  - (3) **Qualified trade or business—** For purposes of this subsection, the term “qualified [trade or business](/usc/26/1402.md?p=c)” means any [trade or business](/usc/26/1402.md?p=c) other than—
    - (A) any [trade or business](/usc/26/1402.md?p=c) involving the performance of services in the fields of health, law, engineering, architecture, accounting, actuarial science, performing arts, consulting, athletics, financial services, brokerage services, or any [trade or business](/usc/26/1402.md?p=c) where the principal asset of such [trade or business](/usc/26/1402.md?p=c) is the reputation or skill of 1 or more of its [employees](/usc/26/430.md?p=c-7-D-vi),
    - (B) any banking, insurance, financing, leasing, investing, or similar business,
    - (C) any farming business (including the business of raising or harvesting trees),
    - (D) any business involving the production or extraction of products of a character with respect to which a deduction is allowable under section [613](/usc/26/613.md) or [613A](/usc/26/613A.md), and
    - (E) any business of operating a hotel, motel, restaurant, or similar business.
  - (4) **Eligible corporation—** For purposes of this subsection, the term “eligible corporation” means any domestic corporation; except that such term shall not include—
    - (A) a DISC or former DISC,
    - (B) a [regulated investment company](/usc/26/851.md?p=a), [real estate investment trust](/usc/26/856.md?p=a), or [REMIC](/usc/26/860D.md?p=a), and
    - (C) a cooperative.
  - (5) **Stock in other corporations—**
    - (A) **Look-thru in case of subsidiaries—** For purposes of this subsection, [stock](/usc/26/1504.md?p=a-4) and debt in any [subsidiary corporation](/usc/26/424.md?p=f) shall be disregarded and the [parent corporation](/usc/26/424.md?p=e) shall be deemed to own its ratable share of the subsidiary’s assets, and to conduct its ratable share of the subsidiary’s activities.
    - (B) **Portfolio stock or securities—** A corporation shall be treated as failing to meet the requirements of [paragraph (1)](#e-1) for any period during which more than 10 percent of the [value](/usc/26/851.md?p=c-4) of its assets (in excess of liabilities) consists of [stock](/usc/26/1504.md?p=a-4) or [securities](/usc/26/368.md?p=a-2-F-vii) in other corporations which are not subsidiaries of such corporation (other than assets described in [paragraph (6)](#e-6)).
    - (C) **Subsidiary—** For purposes of this paragraph, a corporation shall be considered a subsidiary if the parent owns more than 50 percent of the combined voting power of all classes of [stock](/usc/26/1504.md?p=a-4) entitled to vote, or more than 50 percent in [value](/usc/26/851.md?p=c-4) of all outstanding [stock](/usc/26/1504.md?p=a-4), of such corporation.
  - (6) **Working capital—** For purposes of [paragraph (1)(A)](#e-1-A), any assets which—
    - (A) are held as a part of the reasonably required working capital needs of a qualified [trade or business](/usc/26/1402.md?p=c) of the corporation, or
    - (B) are held for investment and are reasonably expected to be used within 2 years to finance research and experimentation in a qualified [trade or business](/usc/26/1402.md?p=c) or increases in working capital needs of a qualified [trade or business](/usc/26/1402.md?p=c),

    shall be treated as used in the active conduct of a qualified [trade or business](/usc/26/1402.md?p=c). For periods after the corporation has been in existence for at least 2 years, in no event may more than 50 percent of the assets of the corporation qualify as used in the active conduct of a qualified [trade or business](/usc/26/1402.md?p=c) by reason of this paragraph.

  - (7) **Maximum real estate holdings—** A corporation shall not be treated as meeting the requirements of [paragraph (1)](#e-1) for any period during which more than 10 percent of the total [value](/usc/26/851.md?p=c-4) of its assets consists of real [property](/usc/26/317.md?p=a) which is not used in the active conduct of a qualified [trade or business](/usc/26/1402.md?p=c). For purposes of the preceding sentence, the ownership of, dealing in, or renting of real [property](/usc/26/317.md?p=a) shall not be treated as the active conduct of a qualified [trade or business](/usc/26/1402.md?p=c).
  - (8) **Computer software royalties—** For purposes of [paragraph (1)](#e-1), rights to computer software which produces active business computer software royalties (within the meaning of [section 543(d)(1)](/usc/26/543.md?p=d-1)) shall be treated as an asset used in the active conduct of a [trade or business](/usc/26/1402.md?p=c).
- (f) **Stock acquired on conversion of other stock—** If any [stock](/usc/26/1504.md?p=a-4) in a corporation is acquired solely through the conversion of other [stock](/usc/26/1504.md?p=a-4) in such corporation which is qualified small business [stock](/usc/26/1504.md?p=a-4) in the hands of the [taxpayer](/usc/26/1313.md?p=b)—
  - (1) the [stock](/usc/26/1504.md?p=a-4) so acquired shall be treated as qualified small business [stock](/usc/26/1504.md?p=a-4) in the hands of the [taxpayer](/usc/26/1313.md?p=b), and
  - (2) the [stock](/usc/26/1504.md?p=a-4) so acquired shall be treated as having been held during the period during which the converted [stock](/usc/26/1504.md?p=a-4) was held.
- (g) **Treatment of pass-thru entities—**
  - (1) **In general—** If any amount included in gross income by reason of holding an [interest](/usc/26/856.md?p=f-1) in a pass-thru entity meets the requirements of [paragraph (2)](#g-2)—
    - (A) such amount shall be treated as gain described in [subsection (a)](#a), and
    - (B) for purposes of applying [subsection (b)](#b), such amount shall be treated as gain from a [disposition](/usc/26/424.md?p=c-1) of [stock](/usc/26/1504.md?p=a-4) in the corporation issuing the [stock](/usc/26/1504.md?p=a-4) disposed of by the pass-thru entity and the [taxpayer](/usc/26/1313.md?p=b)’s proportionate share of the adjusted basis of the pass-thru entity in such [stock](/usc/26/1504.md?p=a-4) shall be taken into account.
  - (2) **Requirements—** An amount meets the requirements of this paragraph if—
    - (A) such amount is attributable to gain on the [sale or exchange](/usc/26/864.md?p=c-8-D) by the pass-thru entity of [stock](/usc/26/1504.md?p=a-4) which is qualified small business [stock](/usc/26/1504.md?p=a-4) in the hands of such entity (determined by treating such entity as an individual) and which was held by such entity for at least 3 years (more than 5 years in the case of [stock](/usc/26/1504.md?p=a-4) acquired on or before the [applicable date](/usc/26/1361.md?p=c-1-B-iii)), and
    - (B) such amount is includible in the gross income of the [taxpayer](/usc/26/1313.md?p=b) by reason of the holding of an [interest](/usc/26/856.md?p=f-1) in such entity which was held by the [taxpayer](/usc/26/1313.md?p=b) on the date on which such pass-thru entity acquired such [stock](/usc/26/1504.md?p=a-4) and at all times thereafter before the [disposition](/usc/26/424.md?p=c-1) of such [stock](/usc/26/1504.md?p=a-4) by such pass-thru entity.
  - (3) **Limitation based on interest originally held by taxpayer—** [Paragraph (1)](#g-1) shall not apply to any amount to the extent such amount exceeds the amount to which [paragraph (1)](#g-1) would have applied if such amount were determined by reference to the [interest](/usc/26/856.md?p=f-1) the [taxpayer](/usc/26/1313.md?p=b) held in the pass-thru entity on the date the qualified small business [stock](/usc/26/1504.md?p=a-4) was acquired.
  - (4) **Pass-thru entity—** For purposes of this subsection, the term “pass-thru entity” means—
    - (A) any [partnership](/usc/26/761.md?p=a),
    - (B) any [S corporation](/usc/26/1361.md?p=a-1),
    - (C) any [regulated investment company](/usc/26/851.md?p=a), and
    - (D) any common trust [fund](/usc/26/851.md?p=g-2).
- (h) **Certain tax-free and other transfers—** For purposes of this section—
  - (1) **In general—** In the case of a transfer described in [paragraph (2)](#h-2), the transferee shall be treated as—
    - (A) having acquired such [stock](/usc/26/1504.md?p=a-4) in the same manner as the transferor, and
    - (B) having held such [stock](/usc/26/1504.md?p=a-4) during any continuous period immediately preceding the transfer during which it was held (or treated as held under this subsection) by the transferor.
  - (2) **Description of transfers—** A transfer is described in this subsection if such transfer is—
    - (A) by gift,
    - (B) at death, or
    - (C) from a [partnership](/usc/26/761.md?p=a) to a [partner](/usc/26/761.md?p=b) of [stock](/usc/26/1504.md?p=a-4) with respect to which requirements similar to the requirements of [subsection (g)](#g) are met at the time of the transfer (without regard to the 5-year holding period requirement).
  - (3) **Certain rules made applicable—** Rules similar to the rules of [section 1244(d)(2)](/usc/26/1244.md?p=d-2) shall apply for purposes of this section.
  - (4) **Incorporations and reorganizations involving nonqualified stock—**
    - (A) **In general—** In the case of a transaction described in [section 351](/usc/26/351.md) or a [reorganization](/usc/26/368.md?p=a-1) described in [section 368](/usc/26/368.md), if qualified small business [stock](/usc/26/1504.md?p=a-4) is exchanged for other [stock](/usc/26/1504.md?p=a-4) which would not qualify as qualified small business [stock](/usc/26/1504.md?p=a-4) but for this subparagraph, such other [stock](/usc/26/1504.md?p=a-4) shall be treated as qualified small business [stock](/usc/26/1504.md?p=a-4) acquired on the date on which the exchanged [stock](/usc/26/1504.md?p=a-4) was acquired.
    - (B) **Limitation—** This section shall apply to gain from the [sale or exchange](/usc/26/864.md?p=c-8-D) of [stock](/usc/26/1504.md?p=a-4) treated as qualified small business [stock](/usc/26/1504.md?p=a-4) by reason of [subparagraph (A)](#h-4-A) only to the extent of the gain which would have been recognized at the time of the transfer described in [subparagraph (A)](#h-4-A) if section [351](/usc/26/351.md) or [368](/usc/26/368.md) had not applied at such time. The preceding sentence shall not apply if the [stock](/usc/26/1504.md?p=a-4) which is treated as qualified small business [stock](/usc/26/1504.md?p=a-4) by reason of [subparagraph (A)](#h-4-A) is issued by a corporation which (as of the time of the transfer described in [subparagraph (A)](#h-4-A)) is a qualified small business.
    - (C) **Successive application—** For purposes of this paragraph, [stock](/usc/26/1504.md?p=a-4) treated as qualified small business [stock](/usc/26/1504.md?p=a-4) under [subparagraph (A)](#h-4-A) shall be so treated for subsequent transactions or [reorganizations](/usc/26/368.md?p=a-1), except that the limitation of [subparagraph (B)](#h-4-B) shall be applied as of the time of the first transfer to which such limitation applied (determined after the application of the second sentence of [subparagraph (B)](#h-4-B)).
    - (D) **Control test—** In the case of a transaction described in [section 351](/usc/26/351.md), this paragraph shall apply only if, immediately after the transaction, the corporation issuing the [stock](/usc/26/1504.md?p=a-4) owns directly or [indirectly](/usc/26/101.md?p=a-3-B) [stock](/usc/26/1504.md?p=a-4) representing [control](/usc/26/368.md?p=a-2-H-i) (within the meaning of [section 368(c)](/usc/26/368.md?p=c)) of the corporation whose [stock](/usc/26/1504.md?p=a-4) was exchanged.
- (i) **Basis rules—** For purposes of this section—
  - (1) **Stock exchanged for property—** In the case where the [taxpayer](/usc/26/1313.md?p=b) transfers [property](/usc/26/317.md?p=a) (other than money or [stock](/usc/26/1504.md?p=a-4)) to a corporation in exchange for [stock](/usc/26/1504.md?p=a-4) in such corporation—
    - (A) such [stock](/usc/26/1504.md?p=a-4) shall be treated as having been acquired by the [taxpayer](/usc/26/1313.md?p=b) on the date of such exchange, and
    - (B) the basis of such [stock](/usc/26/1504.md?p=a-4) in the hands of the [taxpayer](/usc/26/1313.md?p=b) shall in no event be less than the fair market [value](/usc/26/851.md?p=c-4) of the [property](/usc/26/317.md?p=a) exchanged.
  - (2) **Treatment of contributions to capital—** If the adjusted basis of any qualified small business [stock](/usc/26/1504.md?p=a-4) is adjusted by reason of any contribution to capital after the date on which such [stock](/usc/26/1504.md?p=a-4) was originally issued, in determining the amount of the adjustment by reason of such contribution, the basis of the contributed [property](/usc/26/317.md?p=a) shall in no event be treated as less than its fair market [value](/usc/26/851.md?p=c-4) on the date of the contribution.
- (j) **Treatment of certain short positions—**
  - (1) **In general—** If the [taxpayer](/usc/26/1313.md?p=b) has an offsetting short position with respect to any qualified small business [stock](/usc/26/1504.md?p=a-4), [subsection (a)](#a) shall not apply to any gain from the [sale or exchange](/usc/26/864.md?p=c-8-D) of such [stock](/usc/26/1504.md?p=a-4) unless—
    - (A) such [stock](/usc/26/1504.md?p=a-4) was held by the [taxpayer](/usc/26/1313.md?p=b) for at least 3 years (more than 5 years in the case of [stock](/usc/26/1504.md?p=a-4) acquired on or before the [applicable date](/usc/26/1361.md?p=c-1-B-iii)) as of the first day on which there was such a short position, and
    - (B) the [taxpayer](/usc/26/1313.md?p=b) elects to recognize gain as if such [stock](/usc/26/1504.md?p=a-4) were sold on such first day for its fair market [value](/usc/26/851.md?p=c-4).
  - (2) **Offsetting short position—** For purposes of [paragraph (1)](#j-1), the [taxpayer](/usc/26/1313.md?p=b) shall be treated as having an offsetting short position with respect to any qualified small business [stock](/usc/26/1504.md?p=a-4) if—
    - (A) the [taxpayer](/usc/26/1313.md?p=b) has made a short sale of substantially identical [property](/usc/26/317.md?p=a),
    - (B) the [taxpayer](/usc/26/1313.md?p=b) has acquired an option to sell substantially identical [property](/usc/26/317.md?p=a) at a fixed price, or
    - (C) to the extent provided in regulations, the [taxpayer](/usc/26/1313.md?p=b) has entered into any other transaction which substantially reduces the risk of loss from holding such qualified small business [stock](/usc/26/1504.md?p=a-4).

    For purposes of the preceding sentence, any reference to the [taxpayer](/usc/26/1313.md?p=b) shall be treated as including a reference to any person who is related (within the meaning of section [267(b)](/usc/26/267.md?p=b) or [707(b)](/usc/26/707.md?p=b)) to the [taxpayer](/usc/26/1313.md?p=b).

- (k) **Regulations—** The Secretary shall prescribe such regulations as may be appropriate to carry out the purposes of this section, including regulations to prevent the avoidance of the purposes of this section through split-ups, shell corporations, [partnerships](/usc/26/761.md?p=a), or otherwise.

## Footnotes

[^1]: So in original. The comma probably should be followed by “and”.
[^2]: So in original. There are two pars. (4).

## Source credit

(Added Pub. L. 103–66, title XIII, § 13113(a), Aug. 10, 1993, 107 Stat. 422; amended Pub. L. 104–188, title I, § 1621(b)(7), Aug. 20, 1996, 110 Stat. 1867; Pub. L. 106–554, § 1(a)(7) [title I, § 117(a), (b)(2)], Dec. 21, 2000, 114 Stat. 2763, 2763A–604; Pub. L. 108–357, title VIII, § 835(b)(9), Oct. 22, 2004, 118 Stat. 1594; Pub. L. 111–5, div. B, title I, § 1241(a), Feb. 17, 2009, 123 Stat. 342; Pub. L. 111–240, title II, § 2011(a), (b), Sept. 27, 2010, 124 Stat. 2554; Pub. L. 111–312, title VII, §§ 753(b), 760(a), Dec. 17, 2010, 124 Stat. 3321, 3323; Pub. L. 112–240, title III, §§ 324(a), (b), 327(b), Jan. 2, 2013, 126 Stat. 2333, 2334; Pub. L. 113–295, div. A, title I, § 136(a), Dec. 19, 2014, 128 Stat. 4019; Pub. L. 114–113, div. Q, title I, § 126(a), Dec. 18, 2015, 129 Stat. 3054; Pub. L. 115–141, div. U, title IV, § 401(d)(1)(D)(xv), (4)(B)(v), Mar. 23, 2018, 132 Stat. 1208, 1209; Pub. L. 119–21, title VII, §§ 70302(b)(11), 70431(a)(1)–(3), (4)(B), (5), (b)(1)–(3), (c)(1), (2), July 4, 2025, 139 Stat. 192, 240–242.)

## Notes

### Editorial Notes

### References in Text

The date of the enactment of this paragraph, referred to in subsec. (a)(2)(A), is the date of enactment of Pub. L. 106–554, which was approved Dec. 21, 2000.

Section 1400B(b), referred to in subsec. (a)(2)(B), was repealed by Pub. L. 115–141, div. U, title IV, § 401(d)(4)(A), Mar. 23, 2018, 132 Stat. 1209.

The date of the enactment of this paragraph, referred to in subsec. (a)(3), is the date of enactment of Pub. L. 111–5, which was approved Feb. 17, 2009.

The date of the enactment of the Creating Small Business Jobs Act of 2010, referred to in subsec. (a)(3), (4), is the date of enactment of Pub. L. 111–240, which was approved Sept. 27, 2010.

The date of the enactment of this paragraph, referred to in subsec. (a)(6)(A), is the date of enactment of Pub. L. 119–21, which was approved July 4, 2025.

The date of the enactment of the Revenue Reconciliation Act of 1993, referred to in subsecs. (c)(1) and (d)(1)(A), is the date of enactment of Pub. L. 103–66, which was approved Aug. 10, 1993.

Section 301(d) of the Small Business Investment Act of 1958, referred to in subsec. (c)(2)(B)(ii), was classified to section 681(d) of Title 15, Commerce and Trade, prior to repeal by Pub. L. 104–208, div. D, title II, § 208(b)(3)(A), Sept. 30, 1996, 110 Stat. 3009–742.

### Prior Provisions

A prior section 1202, acts Aug. 16, 1954, ch. 736, 68A Stat. 320; Oct. 4, 1976, Pub. L. 94–455, title XIX, § 1901(b)(33)(M), 90 Stat. 1802; Nov. 6, 1978, Pub. L. 95–600, title IV, § 402(a), 92 Stat. 2867; Apr. 1, 1980, Pub. L. 96–222, title I, § 104(a)(2)(A), 94 Stat. 214, authorized deduction for capital gains, prior to repeal by Pub. L. 99–514, title III, § 301(a), (c), Oct. 22, 1986, 100 Stat. 2216, 2218, applicable to taxable years beginning after Dec. 31, 1986.

### Amendments

2025—Subsec. (a)(1). Pub. L. 119–21, § 70431(a)(1), amended par. (1) generally. Prior to amendment, text read as follows: “In the case of a taxpayer other than a corporation, gross income shall not include 50 percent of any gain from the sale or exchange of qualified small business stock held for more than 5 years.”

Subsec. (a)(3)(A). Pub. L. 119–21, § 70431(a)(5)(A), substituted “paragraph (1)(A)” for “paragraph (1)”.

Subsec. (a)(4). Pub. L. 119–21, § 70431(a)(5)(B), which directed amendment of par. (4)(A) of subsec. (a) by inserting “and on or before the applicable date” after “2010”, was executed by making the insertion in introductory provisions of par. (4) to reflect the probable intent of Congress.

Subsec. (a)(4)(A). Pub. L. 119–21, § 70431(a)(5)(A), substituted “paragraph (1)(A)” for “paragraph (1)”.

Subsec. (a)(4)(C). Pub. L. 119–21, § 70431(a)(4)(B), struck out subpar. (C) which read as follows: “paragraph (7) of section 57(a) shall not apply.”

Subsec. (a)(5). Pub. L. 119–21, § 70431(a)(2), added par. (5).

Subsec. (a)(6). Pub. L. 119–21, § 70431(a)(3), added par. (6).

Subsec. (b)(1)(A). Pub. L. 119–21, § 70431(b)(1), amended subpar. (A) generally. Prior to amendment, subpar. (A) read as follows: “$10,000,000 reduced by the aggregate amount of eligible gain taken into account by the taxpayer under subsection (a) for prior taxable years and attributable to dispositions of stock issued by such corporation, or”.

Subsec. (b)(2). Pub. L. 119–21, § 70431(a)(5)(C), substituted “at least 3 years (more than 5 years in the case of stock acquired on or before the applicable date)” for “more than 5 years”.

Subsec. (b)(3)(A). Pub. L. 119–21, § 70431(b)(3), amended subpar. (A) generally. Prior to amendment, text read as follows: “In the case of a separate return by a married individual, paragraph (1)(A) shall be applied by substituting ‘$5,000,000’ for ‘$10,000,000’.”

Subsec. (b)(4). Pub. L. 119–21, § 70431(c)(2), added par. (4) relating to inflation adjustment. Paragraph was added as directed “at the end” of subsec. (b), and therefore after par. (5) of subsec. (b) as added by Pub. L. 119–21, § 70431(b)(2). See note below.

Pub. L. 119–21, § 70431(b)(2), added par. (4) relating to applicable dollar limit.

Subsec. (b)(5). Pub. L. 119–21, § 70431(b)(2), added par. (5).

Subsec. (d)(1)(A), (B). Pub. L. 119–21, § 70431(c)(1), substituted “$75,000,000” for “$50,000,000”.

Subsec. (e)(2)(B). Pub. L. 119–21, § 70302(b)(11), substituted “which are treated as foreign research or experimental expenditures under section 174 or domestic research or experimental expenditures under section 174A” for “which may be treated as research and experimental expenditures under section 174”.

Subsecs. (g)(2)(A), (j)(1)(A). Pub. L. 119–21, § 70431(a)(5)(C), substituted “at least 3 years (more than 5 years in the case of stock acquired on or before the applicable date)” for “more than 5 years”.

2018—Subsec. (a)(2)(B). Pub. L. 115–141, § 401(d)(4)(B)(v), inserted “(as in effect before its repeal)” after “1400B(b)”.

Subsec. (e)(4)(B) to (D). Pub. L. 115–141, § 401(d)(1)(D)(xv), redesignated subpars. (C) and (D) as (B) and (C), respectively, and struck out former subpar. (B) which read as follows: “a corporation with respect to which an election under section 936 is in effect or which has a direct or indirect subsidiary with respect to which such an election is in effect,”.

2015—Subsec. (a)(4). Pub. L. 114–113 substituted “and thereafter” for “, 2011, 2012, 2013, and 2014” in heading and struck out “and before January 1, 2015” after “of the Creating Small Business Jobs Act of 2010” in introductory provisions.

2014—Subsec. (a)(4). Pub. L. 113–295 substituted “2013, and 2014” for “and 2013” in heading and “January 1, 2015” for “January 1, 2014” in introductory provisions.

2013—Subsec. (a)(2)(C). Pub. L. 112–240, § 327(b), substituted “2018” for “2016” in heading and “December 31, 2018” for “December 31, 2016” in text.

Subsec. (a)(3). Pub. L. 112–240, § 324(b)(1), inserted concluding provisions.

Subsec. (a)(4). Pub. L. 112–240, § 324(b)(2), inserted concluding provisions.

Pub. L. 112–240, § 324(a), substituted “, 2011, 2012, and 2013” for “and 2011” in heading and “January 1, 2014” for “January 1, 2012” in introductory provisions.

2010—Subsec. (a)(2)(C). Pub. L. 111–312, § 753(b), substituted “2016” for “2014” in heading and “December 31, 2016” for “December 31, 2014” in text.

Subsec. (a)(3). Pub. L. 111–240, § 2011(b), inserted “certain periods in” before “2010” in heading and substituted “on or before the date of the enactment of the Creating Small Business Jobs Act of 2010” for “before January 1, 2011” in text.

Subsec. (a)(4). Pub. L. 111–312, § 760(a), inserted “and 2011” after “2010” in heading and substituted “January 1, 2012” for “January 1, 2011” in introductory provisions.

Pub. L. 111–240, § 2011(a), added par. (4).

2009—Subsec. (a)(3). Pub. L. 111–5 added par. (3).

2004—Subsec. (e)(4)(C). Pub. L. 108–357 substituted “or REMIC” for “REMIC, or FASIT”.

2000—Pub. L. 106–554, § 1(a)(7) [title I, § 117(b)(2)], substituted “Partial” for “50-percent” in section catchline.

Subsec. (a). Pub. L. 106–554, § 1(a)(7) [title I, § 117(a)], amended heading and text of subsec. (a) generally. Prior to amendment, text read as follows: “In the case of a taxpayer other than a corporation, gross income shall not include 50 percent of any gain from the sale or exchange of qualified small business stock held for more than 5 years.”

1996—Subsec. (e)(4)(C). Pub. L. 104–188 substituted “REMIC, or FASIT” for “or REMIC”.

### Statutory Notes and Related Subsidiaries

### Effective Date of 2025 Amendment

Amendment by section 70302(b)(11) of Pub. L. 119–21 applicable to amounts paid or incurred in taxable years beginning after Dec. 31, 2024, subject to election for retroactive application by certain small businesses and election to deduct certain unamortized amounts paid or incurred in taxable years beginning before Jan. 1, 2025, see section 70302(e), (f) of Pub. L. 119–21, set out as an Effective Date note under section 174A of this title.

Amendment by section 70431(a)(1)–(3), (4)(B), (5) of Pub. L. 119–21 generally applicable to taxable years beginning after July 4, 2025, with amendment by section 70431(a)(4)(B) to take effect as if included in the enactment of section 2011 of Pub. L. 111–240, see section 70431(a)(6) of Pub. L. 119–21, set out as a note under section 57 of this title.

Pub. L. 119–21, title VII, § 70431(b)(4), July 4, 2025, 139 Stat. 242, provided that: “The amendments made by this subsection [amending this section] shall apply to taxable years beginning after the date of the enactment of this Act [July 4, 2025].”

Pub. L. 119–21, title VII, § 70431(c)(3), July 4, 2025, 139 Stat. 242, provided that: “The amendments made by this subsection [amending this section] shall apply to stock issued after the date of the enactment of this Act [July 4, 2025].”

### Effective Date of 2015 Amendment

Pub. L. 114–113, div. Q, title I, § 126(b), Dec. 18, 2015, 129 Stat. 3054, provided that: “The amendments made by this section [amending this section] shall apply to stock acquired after December 31, 2014.”

### Effective Date of 2014 Amendment

Pub. L. 113–295, div. A, title I, § 136(b), Dec. 19, 2014, 128 Stat. 4019, provided that: “The amendments made by this section [amending this section] shall apply to stock acquired after December 31, 2013.”

### Effective Date of 2013 Amendment

Pub. L. 112–240, title III, § 324(c), Jan. 2, 2013, 126 Stat. 2333, provided that: In general.—The amendments made by subsection (a) [amending this section] shall apply to stock acquired after December 31, 2011. Subsection (b)(1).—The amendment made by subsection (b)(1) [amending this section] shall take effect as if included in section 1241(a) of division B of the American Recovery and Reinvestment Act of 2009 [Pub. L. 111–5]. Subsection (b)(2).—The amendment made by subsection (b)(2) [amending this section] shall take effect as if included in section 2011(a) of the Creating Small Business Jobs Act of 2010 [title II of Pub. L. 111–240].”

Pub. L. 112–240, title III, § 327(d), Jan. 2, 2013, 126 Stat. 2334, provided that: “The amendments made by this section [amending this section and section 1391 of this title] shall apply to periods after December 31, 2011.”

### Effective Date of 2010 Amendment

Pub. L. 111–312, title VII, § 753(d), Dec. 17, 2010, 124 Stat. 3321, provided that: “The amendments made by this section [amending this section and section 1391 of this title] shall apply to periods after December 31, 2009.”

Pub. L. 111–312, title VII, § 760(b), Dec. 17, 2010, 124 Stat. 3323, provided that: “The amendments made by this section [amending this section] shall apply to stock acquired after December 31, 2010.”

Pub. L. 111–240, title II, § 2011(c), Sept. 27, 2010, 124 Stat. 2554, provided that: “The amendments made by this section [amending this section] shall apply to stock acquired after the date of the enactment of this Act [Sept. 27, 2010].”

### Effective Date of 2009 Amendment

Pub. L. 111–5, div. B, title I, § 1241(b), Feb. 17, 2009, 123 Stat. 342, provided that: “The amendment made by this section [amending this section] shall apply to stock acquired after the date of the enactment of this Act [Feb. 17, 2009].”

### Effective Date of 2004 Amendment

Amendment by Pub. L. 108–357 effective Jan. 1, 2005, with exception for any FASIT in existence on Oct. 22, 2004, to the extent that regular interests issued by the FASIT before such date continue to remain outstanding in accordance with the original terms of issuance, see section 835(c) of Pub. L. 108–357, set out as a note under section 56 of this title.

### Effective Date of 2000 Amendment

Amendment by Pub. L. 106–554 applicable to stock acquired after Dec. 21, 2000, see section 1(a)(7) [title I, § 117(c)] of Pub. L. 106–554, set out as a note under section 1 of this title.

### Effective Date of 1996 Amendment

Amendment by Pub. L. 104–188 effective Sept. 1, 1997, see section 1621(d) of Pub. L. 104–188, set out as a note under section 26 of this title.

### Effective Date

Section applicable to stock issued after Aug. 10, 1993, see section 13113(e) of Pub. L. 103–66, set out as an Effective Date of 1993 Amendment note under section 53 of this title.

### Savings Provision

Amendment by section 401(d)(4)(B)(v) of Pub. L. 115–141 not applicable to certain obligations issued, DC Zone assets acquired, or principal residences acquired before Jan. 1, 2012, see section 401(d)(4)(C) of Pub. L. 115–141, set out as a note under former section 1400 of this title.

For provisions that nothing in amendment by Pub. L. 115–141 be construed to affect treatment of certain transactions occurring, property acquired, or items of income, loss, deduction, or credit taken into account prior to Mar. 23, 2018, for purposes of determining liability for tax for periods ending after Mar. 23, 2018, see section 401(e) of Pub. L. 115–141, set out as a note under section 23 of this title.

### Special Rule for Pass-Through Entities

Pub. L. 96–222, title I, § 104(a)(2)(C), Apr. 1, 1980, 94 Stat. 215, as amended by Pub. L. 99–514, § 2, Oct. 22, 1986, 100 Stat. 2095, provided that: In general.—In applying sections [former] 1201(c)(2)(A)(ii) and 1202(c)(1)(B) of the Internal Revenue Code of 1986 [formerly I.R.C. 1954] with respect to any pass-through entity, the determination of the period for which gain or loss is properly taken into account shall be made at the entity level. Pass-through entity defined.—For purposes of clause (i), the term ‘pass-through entity’ means— a regulated investment company, a real estate investment trust, an electing small business corporation, a partnership, an estate or trust, and a common trust fund.”