2011 California Code
Revenue and Taxation Code
DIVISION 2. OTHER TAXES [6001 - 60708]
CHAPTER 13. Gain or Loss on Disposition of Property
Section 18038.5

CA Rev & Tax Code § 18038.5 (through 2012 Leg Sess) What's This?

(a) In the case of any sale of qualified small business stock held by a taxpayer other than a corporation for more than six months and with respect to which that taxpayer elects the application of this section, gain from that sale shall be recognized only to the extent that the amount realized on that sale exceeds:

(1) The cost of any qualified small business stock purchased by the taxpayer during the 60-day period beginning on the date of that sale, reduced by

(2) Any portion of the cost previously taken into account under this section.

This section shall not apply to any gain that is treated as ordinary income for purposes of this part.

(b) For purposes of this section:

(1) The term qualified small business stock has the meaning given that term by subdivision (c) of Section 18152.5.

(2) A taxpayer shall be treated as having purchased any property if, but for paragraph (3), the unadjusted basis of that property in the hands of the taxpayer would be its cost (within the meaning of Section 1012 of the Internal Revenue Code).

(3) If gain from any sale is not recognized by reason of subdivision (a), that gain shall be applied to reduce (in the order acquired) the basis for determining gain or loss of any qualified small business stock that is purchased by the taxpayer during the 60-day period described in subdivision (a).

(4) For purposes of determining whether the nonrecognition of gain under subdivision (a) applies to stock that is sold, both of the following shall apply:

(A) The taxpayer s holding period for that stock and the stock referred to in paragraph (1) of subdivision (a) shall be determined without regard to Section 1223 of the Internal Revenue Code.

(B) Only the first six months of the taxpayer s holding period for the stock referred to in paragraph (1) of subdivision (a) shall be taken into account for purposes of applying paragraph (2) of subdivision (c) of Section 18152.5.

(5) Rules similar to the rules of subdivisions (f), (g), (h), (i), (j), and (k) of Section 18152.5 shall apply.

(c) This section shall apply to sales made after August 5, 1997.

(Amended by Stats. 2002, Ch. 35, Sec. 28. Effective May 8, 2002. Applicable as prescribed by Sec. 65 of Ch. 35.)

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