Tax

Section 1202 QSBS: Up to $15M Gain Tax-Free

Qualified Small Business Stock can exclude up to $15M (or 10× basis) of gain from federal tax for stock issued after July 4, 2025, $10M for earlier stock. Here's eligibility, both regimes, and the holding rules.

By Aparna Devalla, CPA3 min · 5 slidesUpdated July 26, 2026

1 / 5

What QSBS Does

Section 1202 lets shareholders exclude federal capital gains tax on qualifying small business stock, up to a per-issuer cap of $15M (stock issued after July 4, 2025) or $10M (stock issued on or before that date), or 10× the original basis, whichever is greater.
Both founders and early employees can qualify.
Federal tax savings on a $10M gain: typically $1.5M–$2.4M (depending on bracket and surtax exposure).
Some states (notably California) don't conform; state tax still applies even when federal is excluded.

Five Requirements for QSBS

1. Stock must be issued by a domestic C-corporation.
2. Issued after August 10, 1993.
3. Acquired at original issuance (or through gift / inheritance from someone who did).
4. The corporation's gross assets at issuance must not exceed the ceiling: $75M for stock issued after July 4, 2025 (indexed), $50M for stock issued on or before that date.
5. The corporation must be engaged in a qualified trade or business: broadly, anything other than the excluded categories (banking, insurance, farming, mining, professional services, and restaurants/hotels).

Two Regimes: Issue Date Decides

Stock issued ON OR BEFORE July 4, 2025 keeps the old rules: $10M cap, $50M gross-assets ceiling, and an all-or-nothing 100% exclusion at 5+ years (for post-9/27/2010 issuances).
Under the old rules, the 5-year holding period is a cliff: even one day short means no exclusion.
Stock issued AFTER July 4, 2025 gets the OBBBA rules: $15M cap (indexed starting 2027), $75M gross-assets ceiling (indexed), and a tiered exclusion starting at 3 years.
Section 1045 lets you roll proceeds from QSBS sold before the holding requirement into new QSBS, deferring the gain while preserving the qualification.
Holding period counts from the original issuance, not from when the recipient acquired (for gifts/inheritance).

OBBBA Tiered Exclusion (Post-7/4/2025 Stock)

One Big Beautiful Bill Act replaced the all-or-nothing cliff with a tiered exclusion based on holding period, for stock issued after July 4, 2025.
3+ years: 50% exclusion.
4+ years: 75% exclusion.
5+ years: 100% exclusion (the full target).
Confirm the issuance date for any specific gain; it determines the cap, the gross-assets test, AND the holding-period schedule.

Common Issues

Failing the original-issuance requirement: stock acquired through secondary purchase doesn't qualify.
Gross assets over the ceiling at issuance ($50M or $75M depending on issue date) disqualifies that issuance entirely.
Qualified trade or business test: most service businesses don't qualify; many SaaS, biotech, manufacturing, and fintech companies do.
California and other non-conforming states still tax the gain; federal exclusion alone doesn't eliminate state tax.
Need help confirming QSBS qualification and planning the gain event? Rubric Financial coordinates §1202 qualification analysis and planning with corporate tax filings.

Use ← → keys or swipe on mobile

Educational content, not tax, legal, or accounting advice. Confirm with a CPA before acting.

QSBS for venture-backed founders, from our sister practice StartupCFO.AI

Accounting

Accrual Accounting: When to Switch From Cash Basis

Cash basis is simple but lies about timing. When accrual accounting is required, when it is simply the smarter call, and exactly how the switch works.

Accounting

Month-End Close Checklist for Small Businesses

A repeatable monthly close cadence, what to reconcile, what to accrue, and how to know your books are actually done.

Payroll

Multi-State Payroll Setup for Small Businesses

One remote employee in another state means new tax registrations, withholding rules, and compliance work. Here's the playbook.

Educational content, not tax, legal, investment, or accounting advice. See our Terms.

Previous in TaxThe Solo Practitioner Retirement Stack: 401(k) + Cash Balance + DB Next in Tax ISO Exercise Multi-Year Strategy: AMT-Optimized Planning

Back to all resources

Want a CPA to own your filings?

Federal, state, and local returns prepared and reviewed by a licensed CPA, with the planning done before year-end rather than after it.

See tax and CPA services