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 carries a 7% AMT preference.
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, and 7% of the excluded gain is an alternative minimum tax preference item. The 100% exclusion (post-September 27, 2010 stock, and OBBBA stock held 5 years) 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 50% and 75% exclusion stock, 7% of the excluded gain is an AMT preference item under §57(a)(7); 100% stock 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.
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. When you exclude 50% or 75% of the gain, 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. 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.