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ARTICLE · 19 MAY 2025

Case Study: Unlocking A $100 Million Gain Exclusion Under Section 1202

MGO CPA LLP
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Section 1202 of the Internal Revenue Code offers a powerful tax incentive for investors in qualified small businesses: the potential to exclude up to $10 million — or 10 times their adjusted basis — from capital gains tax.

United StatesTax
Macias Gini & O'Connell
Macias Gini & O'Connell
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Background

Section 1202 of the Internal Revenue Code offers a powerful tax incentive for investors in qualified small businesses: the potential to exclude up to $10 million — or 10 times their adjusted basis — from capital gains tax. Despite being on the books for over three decades, this provision is still underutilized, largely due to its complexity and lack of detailed IRS guidance.

Challenge

A New York-based advisor reached out to MGO for a second opinion. Their client, a company founder, had recently undergone a recapitalization transaction involving a conversion of common to preferred shares and a partial redemption. A tax attorney had advised the client to claim a $5.8 million gain exclusion.

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