Once the election is made, the following transactions by a resident, or by a partial-year resident while a resident, qualify for the income exclusion:
1. Sales and exchanges of the qualifying stock in the taxable year the election was made and any following taxable year; and
2. Sales and exchanges of stock owned by a spouse or descendant received as a gift, including a gift in trust from the employee during his or her lifetime. Stock received by a non-employee through a will or testamentary trust does not qualify for the exclusion.
For more information, please refer to Neb. Rev. Stat. §§ 77-2715.08 and 77-2715.09.
Qualifying Capital Stock. To exclude income from the sale or exchange of capital stock of a corporation, it is necessary to determine if the specific shares that were sold or exchanged qualify for the exclusion. The qualifying shares must have been acquired either while the employee was employed by the corporation or on account of employment.
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Shares acquired while employed can be either shares received from the corporation as compensation, shares received for retirement purposes, or shares the employee acquired on their own in the open market. If the shares were not acquired while employed, they must have been acquired on account of employment. For the shares to have been acquired on account of employment, the employee must have received a vested right to the shares from the corporation while employed. An option from the employer that is considered to be compensation that can be exercised without any additional payment would be on account of employment.
Income from the sale or exchange of capital stock owned by the spouse or descendant will only qualify for the exclusion if the employee could have taken the exclusion for the same shares if the employee still owned them. To qualify, shares owned by the spouse or descendant must have been received as a gift from the employee while the employee was alive. Any shares that are inherited or received because of the death of the employee, such as a testamentary trust, do not qualify for the exclusion.
Page I — General Instructions
Multiple Sales of Capital Stock from One Employee. When multiple sales of capital stock from one employee were made during the tax year, combine all sales onto a single Page 1 to determine the exclusion.
Sales of Capital Stock from More than One Employee. When multiple sales of capital stock from more than one employee were made during the tax year, whether the spouse is also an employee or the capital stock was gifted, complete a separate Page 1 for each employee’s capital stock. The separate Page 1's must be completed through line 3. Then, consolidate the amounts on lines 4 through 8 on a single Page 1.
Multiple Extraordinary Dividends. One extraordinary dividend may be included on the same Page 1 as a special capital gains exclusion if it is from capital stock from the same employee. A separate Page 1 is required for each additional extraordinary dividend declared during the year.