45th legislature - STATE OF NEW MEXICO - first session, 2001

RELATING TO TAXATION; AMENDING THE INCOME TAX ACT TO PROVIDE A DEDUCTION FOR NET CAPITAL GAIN INCOME ATTRIBUTABLE TO SALES OF ASSETS, STOCK OR OTHER EQUITY OF CLOSELY HELD BUSINESSES.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF NEW MEXICO:

Section 1. Section 7-2-34 NMSA 1978 (being Laws 1999, Chapter 205, Section 1) is amended to read:

"7-2-34. DEDUCTION--CERTAIN NET CAPITAL GAIN INCOME.--

A. Except as provided in Subsection [B] C of this section, a taxpayer may claim a deduction from net income in an amount equal to the greater of:

(1) the taxpayer's net capital gain income for the taxable year for which the deduction is being claimed, but not to exceed one thousand dollars ($1,000); or

(2) the taxpayer's net capital gain income from the sales of closely held businesses if the income is included in net income and allocated or apportioned to New Mexico.

B. A husband and wife who file separate returns for a taxable year in which they could have filed a joint return may each claim only one-half of the deduction provided by this section that would have been allowed on the joint return.

[B.] C. A taxpayer may not claim the deduction provided in Subsection A of this section if the taxpayer has claimed the credit provided in Section 7-2D-8.1 NMSA 1978.

[C.] D. As used in this section:

(1) "closely held business" means a trade or business operated:

(a) as a sole proprietorship; or

(b) by a corporation, partnership, limited partnership, limited liability company or any other legal entity whose outstanding equity interests are owned by seventy-five or fewer individuals;

(2) "equity interests" means the equity of a legal entity, including the capital stock of a corporation, the interests of a general or limited partner in a partnership or the interest of a member of a limited liability company; and

(3) "net capital gain income from the sales of a closely held business" means "net capital gain" as defined in Section 1222 (11) of the Internal Revenue Code to the extent attributable to the sale or exchange of substantially all of the property used in a closely held business or to the sale or exchange of the taxpayer's entire interest in the equity interests of a closely held business in a transaction in which substantially all of the equity interests of the closely held business are sold or exchanged."

Section 2. APPLICABILITY.--The provisions of this act apply to taxable years beginning on or after January 1, 2001.