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States crack down on tax break for wealthy investors - CNBC
Lake Oswego in Oregon.Bradleyhebdon | Istock Unreleased | Getty ImagesA version of this article first appeared in CNBC's Inside Wealth newsletter with Robert Frank, a weekly guide to the high-net-worth investor and consumer. Sign up to receive future editions, straight to your inbox.A wave of states deciding to take aim at a tax incentive for investors and startup founders could sway some high-net-worth residents to relocate, lawyers to the wealthy told Inside Wealth.The One Big Beautiful Bill Act turbocharged the tax breaks on qualified small business stock, better known as QSBS. However, some states, including Maine and Oregon, have targeted the tax incentive in response to federal funding cuts. "Tax policy has consequences, both good and bad, and I think that the states need to figure out what makes the most sense for them," said David Blum, partner and chair of Akerman's national tax practice group. "Someone looking for a substantial exit could have multiple homes already."Blum noted that several billionaires have made high-profile departures from California as a state billionaire tax proposal gains steam. Google co-founder Sergey Brin, who has bought mansions in Nevada and Florida, is funding two ballot initiatives that take aim at the wealth tax measure.The QSBS exemption, introduced during the Clinton administration, was designed to encourage investing and creating small companies. The federal carve-out allows investors and founders to reduce their capital gains taxes when selling stock directly acquired from a qualifying C corp.In order to claim the full exemption, the stock must be held for more than five years. Prior to the OBBBA, the maximum exemption from capital gains taxes was $10 million or 10 times the original basis of the investment, whichever is greater. The OBBBA raised the exclusion to $15 million. The bill also raised the maximum size of qualifying "small businesses" from $50 million to $75 million in gross assets.Last month, Maine and Oregon passed legislation to decouple from the federal QSBS exemption, meaning that taxpayers will have to pay state income taxes on startup exits. Similar efforts in New York and Washington state failed to pass. The District of Columbia Council voted to decouple from several provisions of the OBBBA, but Congress passed a resolution to block that move.Four states already tax gains on QSBS: Alabama, Mississippi, Pennsylvania and, most notably, California, the nation's venture-capital center.Proponents of...
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