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Deferral and Exclusion of Long-Term Capital Gains for Investments

The following information is provided by the Wisconsin Department of Revenue.

Fact Sheet 1102-2

Deferral of Gain

Section 71.05(26), Wis. Stats., provides a deferral of tax on long-term capital gain that is realized from the
sale of assets and reinvested in a “qualified Wisconsin business.”

The deferral is only available to individuals, including individual partners or members of a partnership, limited
liability company, or limited liability partnership, and individual shareholders of a tax-option corporation.

Certain conditions must be met in order to qualify for the deferral of gain:

  • The individual must incur a gain on the sale of a capital asset that is treated as a long-term gain under the Internal Revenue Code (IRC).
  • The portion of the gain, to be deferred, must be invested in a “qualified Wisconsin business” within 180 days after the sale of the capital asset. Investment means amounts paid to acquire stock or other
    ownership interest in a partnership, corporation, tax-option corporation, or limited liability company treated as a partnership or corporation.
  • After making the investment, the individual must use Wisconsin Schedule CG, Income Tax Deferral of Long-Term Capital Gain, to notify the department that they will not declare the gain because it has been
    reinvested. Schedule CG must be attached to the individual’s Wisconsin income tax return for the year of the claim.

The Wisconsin basis of the investment must be reduced by the amount of deferred gain. Thus, the deferred
gain will be taxable for Wisconsin when the investment is later sold and it cannot be excluded.

To continue reading about Exclusion of Long-Term Capital Gain and Qualified Wisconsin Businesses, click here. 

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