The hardest part of QSBS is confirming the stock actually qualifies and knowing which exclusion regime applies before you sell. The companion guide walks through every test, the OBBBA changes, and the §1045 rollover in plain English.
Read the QSBS Exclusion Guide →
Short Answer
IRC §1202 lets a non-corporate investor exclude capital gain on qualified small business stock (QSBS) from federal income tax. For stock acquired after July 4, 2025, the One Big Beautiful Bill Act sets a tiered exclusion: 50% held at least 3 years, 75% at 4 years, and 100% at 5 or more years, with a $15 million per-issuer cap and a $75 million company asset ceiling. Stock acquired on or before July 4, 2025 keeps the legacy rules: a full 5-year hold for any exclusion (100% for post-September 27, 2010 stock), a $10 million cap, and a $50 million ceiling. The cap is the greater of the dollar limit or 10x your basis; the non-excluded part is taxed at a maximum 28% plus the 3.8% NIIT, and 50%/75% stock acquired before September 28, 2010 also carries a 7% AMT preference.
Key Takeaways
- Two regimes split on July 4, 2025. OBBBA stock gets tiered 50/75/100% exclusion at 3/4/5 years; older stock needs more than 5 years for any exclusion.
- OBBBA raised the limits. Per-issuer dollar cap $10M → $15M, company gross-asset ceiling $50M → $75M, both indexed for inflation after 2026.
- The cap is the greater of two numbers. The dollar cap or 10 times your stock basis, whichever is larger; the 10x test mainly helps founders with high-basis stock.
- 100% means truly tax-free. A full exclusion has no taxable portion and no AMT preference.
- Partial exclusions cost more than they look. The non-excluded part of 50%/75% stock is taxed at up to 28% (plus 3.8% NIIT). For stock acquired before September 28, 2010, 7% of the excluded gain is also an AMT preference; the new OBBBA tiers have none.
- Gain above the cap is normal LTCG. It is taxed at 0/15/20% plus any NIIT, with no exclusion.
- The stock must qualify. Domestic C corporation, gross assets under the ceiling at issuance, original-issue acquisition, and an active qualified business.
- State conformity varies. California, New Jersey, and Pennsylvania (for individuals) are among the states that do not follow §1202, so a federal exclusion can still leave a state tax bill.
2026 and 2025 QSBS (Section 1202) Parameters
IRC §1202 - Exclusion Regimes by Acquisition Date
| Stock acquired | Exclusion | Min. hold | Dollar cap | Asset ceiling |
|---|
| After July 4, 2025 (OBBBA) | 50% / 75% / 100% | 3 / 4 / 5 yrs | $15,000,000 | $75,000,000 |
| Sept 28, 2010 - July 4, 2025 | 100% | 5+ yrs | $10,000,000 | $50,000,000 |
| Feb 18, 2009 - Sept 27, 2010 | 75% | 5+ yrs | $10,000,000 | $50,000,000 |
| Aug 11, 1993 - Feb 17, 2009 | 50% | 5+ yrs | $10,000,000 | $50,000,000 |
The per-issuer cap is the greater of the dollar cap or 10 times your adjusted basis in the stock; married filing separately halves the dollar cap. The taxable portion of 50% and 75% exclusion stock is taxed at a maximum 28% rate. For stock acquired on or before September 27, 2010, 7% of the excluded gain is an alternative minimum tax preference item; stock acquired later, including the new 50% and 75% OBBBA tiers, has no AMT preference. Sources: IRC §1202, IRC §1(h), IRC §57(a)(7), and the One Big Beautiful Bill Act (P.L. 119-21).
How the QSBS Exclusion Calculation Works
The tool follows IRC §1202: pick the regime from your acquisition date, set the exclusion percentage from the holding period, apply the per-issuer cap, exclude that fraction, and tax what is left. For the qualification tests and the §1045 rollover, see the QSBS Exclusion Guide.
Step 1: Set the Regime from the Acquisition Date Confirmed
Stock acquired after July 4, 2025 uses the OBBBA tiered rules, a $15 million dollar cap, and a $75 million gross-asset ceiling. Stock acquired on or before that date uses the legacy rules: a $10 million cap, a $50 million ceiling, and a full five-year hold for any exclusion.
Step 2: Set the Exclusion Percentage from the Holding Period Confirmed
For OBBBA stock the percentage is 50% at 3 years, 75% at 4 years, and 100% at 5 or more years (§1202(a)(5)). For older stock it is the fixed percentage tied to the acquisition window (100%, 75%, or 50%), but only once you pass five years. Held too short, or stock that did not qualify, gets a 0% exclusion and the gain is an ordinary long-term capital gain.
Step 3: Apply the Per-Issuer Cap Confirmed
Excludable gain per company is capped at the greater of the dollar cap ($15M or $10M, halved for MFS) or 10 times your basis in the stock (§1202(b)). Gain up to the cap is eligible gain; gain above the cap is a normal long-term capital gain with no exclusion.
Step 4: Exclude the Percentage, Tax the Rest Confirmed
Excluded gain equals the eligible gain times the exclusion percentage and is free of federal income tax. The non-excluded part of the eligible gain (the part 50% and 75% stock leaves behind) is taxed at a maximum 28% rate under §1(h), plus the 3.8% NIIT if it applies.
Step 5: Flag the AMT Preference and Compare Confirmed
For stock acquired on or before September 27, 2010 (the 50% and 75% legacy regimes), 7% of the excluded gain is an AMT preference item under §57(a)(7). Later stock, including the OBBBA 50% and 75% tiers, has none. The tool then compares the QSBS result against treating the whole gain as a normal long-term capital gain so you can see the tax saved.
Real-World Examples
Example 1 — OBBBA stock, 6-year hold, full exclusion
Acquired after July 4, 2025; held 6 years100% tier
Gain $5,000,000, basis $500,000 (cap = $15M)All eligible
Excluded gain$5,000,000
Taxable gain$0
Tax saved vs normal LTCG (20% + 3.8%)$1,190,000
Example 2 — OBBBA stock, 3.5-year hold, 50% tier
Held 3.5 years; gain $2,000,00050% exclusion
Excluded gain$1,000,000
Taxable at 28% + 3.8% NIIT$1,000,000
Tax with QSBS$318,000
AMT preference (OBBBA stock)None
Example 3 — Legacy 100% stock, gain above the $10M cap
Acquired 2018; held 7 years; gain $12,000,000100%, cap $10M
Excluded gain (up to the cap)$10,000,000
Excess over cap, normal LTCG$2,000,000
Tax with QSBS (20% + 3.8% on excess)$476,000
Tax saved vs no QSBS$2,380,000
Example 4 — High-basis founder, 10x test wins
Legacy 100% stock; gain $15M, basis $2M10x = $20M
Cap = greater of $10M or $20M$20,000,000
Excluded gain$15,000,000
Taxable gain$0
Example 5 — MFS, half cap, gain over the cap
OBBBA 100% stock; gain $20M, MFSCap $7.5M
Excluded gain$7,500,000
Excess over cap, normal LTCG$12,500,000
Tax saved vs no QSBS$1,785,000
Example 6 — Sold too early, no exclusion
OBBBA stock held only 2 yearsUnder 3-yr floor
Exclusion0%
Whole gain is normal LTCGConsider §1045 rollover
Practitioner Insight (LMN Tax Inc.)
LMN Tax Inc. — Planning Notes
The mistake we see most often is treating a 100% exclusion as automatic when the stock predates the dates that allow it. A client who bought QSBS in 2008 and held it nine years still gets only a 75% exclusion, because the percentage is frozen at the acquisition-date rule, not the rule in effect when they sell. The holding period gets you to the threshold; it does not upgrade the percentage. We always start from the acquisition date, then layer the hold on top.
The OBBBA tiered rule is a genuine planning lever for the first time. Before, a sale at year four of a five-year hold meant no exclusion at all, so the §1045 rollover was the only tool. Now OBBBA stock sold at year three already locks in 50%, and at year four 75%. We model the after-tax proceeds at each tier against the risk of holding longer, because a bird-in-hand 75% exclusion at four years can beat gambling on the company surviving to year five for the last 25%.
When This Calculator Does Not Cover Your Situation
- Whether the stock actually qualifies. The tool assumes the QSBS tests are met. Confirming the C-corporation status, the gross-asset ceiling at every issuance, original-issue acquisition, and the active-business requirement is a detailed factual review the calculator cannot do.
- The §1045 rollover. If you sell QSBS held more than 6 months before reaching the exclusion threshold, §1045 can defer the gain into new QSBS. This tool models the exclusion, not the rollover deferral.
- Stacking and gifting. The per-issuer cap is per taxpayer, so non-grantor trusts and gifts to family can multiply the cap. That planning is outside this single-taxpayer calculation.
- Mixed lots and partial sales. If you hold QSBS in several lots acquired on different dates, each lot has its own regime and holding period; this tool models one lot at a time.
- State income tax. Several states do not conform to §1202, so the federal exclusion here may not reduce your state tax. Confirm your state's treatment separately.
- The exact AMT outcome. The 7% preference is flagged, but whether it actually produces AMT depends on your full return; run it through Form 6251.
- Convertible debt and options. Stock received on converting a note or exercising an option has its own original-issue and holding-period rules that can move the dates this tool uses.
Frequently Asked Questions
What is the QSBS gain exclusion under Section 1202?
IRC §1202 lets a non-corporate investor exclude part or all of the capital gain on the sale of qualified small business stock (QSBS): stock issued by a domestic C corporation that was a qualified small business when the stock was issued, acquired at original issue, and held for the required period. The excluded gain is free of federal income tax. How much you exclude depends on when you acquired the stock and how long you held it, and the exclusion is capped per company.
How did the One Big Beautiful Bill Act change Section 1202?
For QSBS acquired after July 4, 2025, the One Big Beautiful Bill Act (P.L. 119-21) replaced the single 5-year, 100% rule with a tiered exclusion: 50% if held at least 3 years, 75% at 4 years, and 100% at 5 or more years. It also raised the per-issuer dollar cap from $10 million to $15 million and the company gross-asset ceiling from $50 million to $75 million, both indexed for inflation after 2026. Stock acquired on or before July 4, 2025 keeps the old rules: a full 5-year hold for any exclusion, a $10 million cap, and a $50 million asset ceiling.
How much QSBS gain can I exclude?
The per-issuer limit on excludable gain is the greater of the dollar cap or 10 times your adjusted basis in the stock. For stock acquired after July 4, 2025 the dollar cap is $15 million; for older stock it is $10 million. The 10-times-basis test only beats the dollar cap when your basis is large, for example founder stock issued for substantial property. Gain above the per-issuer limit is a normal long-term capital gain. Married couples filing separately use half the dollar cap.
What rate applies to the taxable part of QSBS gain?
For 50% and 75% exclusion stock, the part of the eligible gain that is not excluded is taxed at a maximum 28% rate, not the usual 15% or 20% long-term capital gains rate, and it can also carry the 3.8% Net Investment Income Tax, so the effective rate can reach 31.8%. For 100% exclusion stock there is no taxable §1202 portion. Any gain above the per-issuer cap is taxed as an ordinary long-term capital gain at 0%, 15%, or 20% plus any NIIT.
Is there an AMT issue with the QSBS exclusion?
Yes, but only for partial exclusions. For stock acquired on or before September 27, 2010 (the legacy 50% and 75% regimes), 7% of the excluded amount is an alternative minimum tax preference item under §57(a)(7), so a slice of the excluded gain can be taxed under the AMT. The One Big Beautiful Bill Act limited the preference to that older stock starting in 2026, so the new 50% and 75% tiers for stock acquired after July 4, 2025 carry no AMT preference. Stock that qualifies for the 100% exclusion (most QSBS acquired after September 27, 2010 and held 5 years, and OBBBA stock held 5 years) has no AMT preference, so the 100% exclusion is genuinely tax-free.
What makes stock qualified small business stock?
The issuer must be a domestic C corporation whose aggregate gross assets did not exceed the ceiling ($50 million for older stock, $75 million for stock acquired after July 4, 2025) at all times before and immediately after the stock was issued. You must acquire the stock at original issue, directly from the company, in exchange for money, other property, or services, and the company must use at least 80% of its assets in an active qualified trade or business throughout your holding period. Most personal services, finance, farming, hospitality, and mining businesses are excluded.
Can I defer QSBS gain if I have not held the stock long enough?
Yes. IRC §1045 lets you roll the gain from QSBS held more than 6 months into new QSBS purchased within 60 days, deferring the gain and tacking the holding period so you can eventually reach the exclusion threshold. This is the standard fix when an exit happens before you have met the 3-year or 5-year hold. The rollover defers rather than excludes; the eventual sale of the replacement QSBS is what produces the exclusion.
Does QSBS gain get the exclusion on my state return?
Not always. The §1202 exclusion is a federal rule. Most states that start from federal taxable income follow it, but several, including California, New Jersey, Pennsylvania (for individuals), and others at various times, do not conform and tax the full gain at the state level. Always confirm your state's conformity before treating the gain as fully tax-free, because a 100% federal exclusion can still leave a sizable state tax bill.
What to Do Next
If You Are Approaching a Holding Milestone
Map your acquisition date to the exact 3-, 4-, or 5-year mark before you sign a sale. A few weeks can move you up a tier (OBBBA stock) or across the five-year line (older stock). The QSBS Exclusion Guide lays out the dates and the §1045 fallback.
Correction · October 2026. An earlier version of this calculator applied the 7% AMT preference to all 50% and 75% exclusions. Under IRC §57(a)(7) as amended by P.L. 119-21, it applies only to stock acquired on or before September 27, 2010; the new OBBBA tiers carry none. See our Corrections Policy and Log.
Disclaimer: This calculator provides estimates for educational purposes only and does not constitute tax or legal advice. The framework reflects IRC §1202 (the QSBS gain exclusion and per-issuer cap), §1(h) (the 28% maximum rate on the taxable portion), §57(a)(7) (the 7% AMT preference on pre-September 2010 stock), and the One Big Beautiful Bill Act (P.L. 119-21) tiered rules for stock acquired after July 4, 2025, for tax years 2025 and 2026. Whether stock qualifies as QSBS is a detailed factual and legal determination. The §1045 rollover, cap stacking through trusts and gifts, mixed lots, the precise AMT outcome, and state conformity are not modeled. Consult a qualified tax professional before relying on these figures.