Tier Two: Condition-Heavy — the Risk Is Substantive

These work exactly as advertised, and each has a substantive condition an examiner will actually test. Build the documentation as you go; every one of them is lost by reconstructing the file afterwards.

QSBS and stacking

(section “Qualified Small Business Stock”) Up to 100% exclusion on a company sale, multiplied through genuinely independent non-grantor trusts. Tested on the asset ceiling, the active-business requirement, and — for stacks — whether the trusts are real. Gift early, use an independent trustee, and mind state nonconformity.

Section 1042 rollover

(section “Employee-Ownership Exits”) Defers the entire gain on a sale to an ESOP or worker cooperative; erased at death by the step-up. Tested on the 30% threshold, the replacement-property window, and the IRC §409(n) family lockout. Price the lockout before electing.

Installment sale

(section “Selling or Passing On the Business”) Spreads gain across payment years and brackets. Tested on recapture (taxed up front regardless) and on the buyer’s credit — secure the note like the lender you have become.

Cost segregation and the short-term-rental pairing

(section “The Magic of Cost Segregation”, section “Short-Term Rentals”) Accelerated depreciation, usable against active income when a seven-day-average rental is materially participated in. Tested on the participation hours and the study’s quality — use a real engineering study and keep a real hours log.

Self-rental

(section “Self-rental Strategies”) Rent from your own building, out of reach of the operating business’s liabilities. Tested on the recharacterization asymmetry — income non-passive, losses passive — and on arm’s-length rent. Set the lease at market and read the grouping election first.

The Augusta rule

(section “Operational Deductions and Family Employment”) Fourteen days of tax-free home rental to your own company. Tested on rate comparables and on whether the meetings happened — document both or skip it.

Oil and gas working interests

(section “The Oil and Gas Working-Interest Carve-Out”) First-year deductions against ordinary income through the IRC §469(c)(3) carve-out. Tested on the unlimited personal liability the carve-out requires and on promoter quality — price the liability, audit the sponsor.

Opportunity zones

(section “Opportunity Zone Deferral”) Deferral plus a ten-year exclusion on new gains. Tested on the deal itself — the tax break is a tiebreaker between good projects, never the reason to invest.