What is QSBS (Section 1202)?

Qualified Small Business Stock (QSBS) under IRC §1202 lets eligible founders and early investors exclude up to 100% of federal capital gains tax on the sale of qualifying C-corp stock, subject to a per-issuer cap.

What changed under the OBBBA in 2025?

For stock acquired after July 4, 2025, the One Big Beautiful Bill Act introduces a tiered exclusion (50% at 3 years held, 75% at 4 years, 100% at 5 years), raises the gross-assets cap from $50M to $75M, and increases the per-issuer cap from $10M to $15M.

Does California honor QSBS?

No. California fully taxes QSBS gains as ordinary capital gains. Most other US states conform to the federal exclusion, but California, New Jersey, and a few others do not. This tool calculates federal-level exclusion only.

What is the 5-year holding period?

Under pre-OBBBA rules, you must hold the stock for more than 5 years from the original issuance date to qualify for any exclusion. Tacking from a §1045 rollover can help if you sell early.

What businesses are excluded from QSBS?

Service businesses (legal, accounting, consulting, health, financial services), farming, mining, hospitality, and finance/insurance generally don't qualify. Most software, SaaS, fintech (non-bank), AI, hardware, biotech, and e-commerce startups do qualify.

How much can I exclude per issuer?

Per-issuer cap is the greater of $10M ($15M for post-OBBBA stock) or 10× the original adjusted basis. Married couples filing jointly each get a full exclusion, and gifting/trust strategies can multiply caps further.

Free Tool

QSBS Qualification Checker

See if your founder stock qualifies for the §1202 federal exclusion — up to 100% of gains, capped at $10M (or $15M post-OBBBA) or 10× basis.

Enter your stock and company details

Stock acquisition date

OBBBA tiered exclusion applies to stock acquired after July 4, 2025.

Gross assets at issuance ($M)

Cap: $50M pre-OBBBA, $75M after July 4, 2025.

Years held

5+ years for 100%; 4+ for 75%; 3+ for 50% (OBBBA only).

Expected gain at sale ($M)

Original cost basis ($M)

Per-issuer cap = greater of $10M (or $15M post-OBBBA) or 10× basis.

Issuer is a domestic C-corporation≥80% of assets in an active qualified trade

Likely qualifies — 100% federal exclusion

Holding tier: 5yr+ · Acquired before OBBBA (July 4, 2025)

Per-issuer cap

$10M

Excludable gain

$10M

Federal tax saved

$2.38M

at 23.8% LTCG + NIIT

Educational estimate only. Holding period is the difference between the acquisition date and the sale date, day-counted under §1202 — values near a tier threshold (3, 4, or 5 years) should be confirmed against actual transaction dates. State taxes (e.g., California fully taxes QSBS) and AMT are not modeled. Talk to a tax advisor before making any decisions.

Planning a tender offer, secondary, or exit?

Our tax team handles §1202 elections, basis tracking, and 5-year reset rollovers under §1045.

Frequently Asked Questions

What is QSBS (Section 1202)?: Qualified Small Business Stock under IRC §1202 lets eligible founders and early investors exclude up to 100% of federal capital gains on the sale of qualifying C-corp stock, subject to a per-issuer cap.
What changed under the OBBBA in 2025?: For stock acquired after July 4, 2025, the One Big Beautiful Bill Act introduces a tiered exclusion (50% at 3 years, 75% at 4 years, 100% at 5 years), raises the gross-assets cap from $50M to $75M, and raises the per-issuer cap from $10M to $15M.
Does California honor QSBS?: No. California fully taxes QSBS gains as ordinary capital gains. Most other US states conform to the federal exclusion. This tool calculates federal-level exclusion only.
What businesses are excluded?: Service businesses (legal, accounting, consulting, health, financial services), farming, mining, hospitality, and finance/insurance generally don't qualify. Most software, SaaS, fintech (non-bank), AI, hardware, biotech, and e-commerce startups do qualify.
How much can I exclude per issuer?: Per-issuer cap is the greater of $10M ($15M for post-OBBBA stock) or 10× the original adjusted basis. Married couples filing jointly each get a full exclusion, and gifting/trust strategies can multiply caps further.

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QSBS Qualification Checker

Frequently Asked Questions

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