Taylor bought 10,000 shares of qualifying Section 1202 stock from a start-up company A on May 1, 2012 for $1,000,000 and 5,000 shares of Section 1202 stock from start-up company B on June 1, 2013 for $200,000. In February 2016, she sold 1,000 shares of A for $500,000; in December she also sold 2,000 shares of B for $300,000 but immediately invested $150,000 in qualifying Section 1202 stock of a third start-up company.

a. What are the tax effects on Taylor’s income for these sales in 2016?

b. How would your answers change if Taylor had purchased the stock of the start-up company A in 2007?

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