Tax law allows preferential treatment for certain types of transactions. Investment in qualified small business stock (QSBS) is one area where several provisions exist to encourage this type of investment. This paper examines two provisions that apply to sales of QSBS that result in gains. One provision, I.R.C. §1202, provides for an exclusion of up to 50 percent of the gain on the sale. The second, I.R.C. §1045, provides for a deferral of gain on the sale of QSBS if the proceeds are reinvested in other QSBS. While valuable tax incentives are associated with the use of either of these provisions, the question arises as to whether both of these provisions can be used together with regard to the same sale of qualifying stock, and if so, in what order. The provisions are illustrated separately and followed by a discussion and illustration of the provisions in combination.

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