What type of gain does the Section 1202 stock pertain to?

Section 1202 stock specifically pertains to qualified small business stock (QSBS) gain. This provision in the Internal Revenue Code offers significant tax benefits for taxpayers who invest in small businesses. When a taxpayer holds this type of stock for more than five years, they may be able to exclude a substantial portion of the gain from the sale or exchange of that stock from federal income tax.

The advantages associated with Section 1202 stock are intended to encourage investment in startups and other small businesses, which are crucial for economic growth and job creation. The exclusions can sometimes allow for up to 100% of the gain to be excluded from taxable income, depending on when the stock was acquired and certain other conditions.

In contrast, the other options refer to different categories of gains that do not apply to the benefits recognized under Section 1202 for qualified small business stock. Short-term capital gains refer to gains from the sale of assets held for less than a year, unrecaptured gain typically relates to the gain on the sale of depreciable real estate, and ordinary income encompasses various forms of income that are taxed at regular rates. Thus, the specific focus of Section 1202 on qualified small business stock gain makes it the correct answer.