Section 1202 figures are as of July 2025 (OBBBA: 50%/75%/100% at 3/4/5 years with a $15M cap for stock acquired on or after July 4, 2025; $10M cap and 5-year rule before that). The cap is inflation indexed, so confirm the current figure before relying on it. This is an estimate, not tax advice.
Selling Startup Stock? See If QSBS Makes Your Gain Tax-Free
Qualified Small Business Stock (QSBS) under Internal Revenue Code Section 1202 is one of the most powerful tax breaks available to startup founders, employees, and early investors. If you acquired stock directly from an eligible C-corporation (with gross assets under $50 million at issuance, operating an active trade or business outside excluded fields like finance and personal services) and held it for more than 5 years, you can exclude the greater of $10 million or 10 times your adjusted cost basis from federal capital gains tax entirely — for stock acquired after September 27, 2010. Sell before the 5-year mark, however, and you lose the exclusion completely: the gain is taxed under ordinary short-term or long-term capital gains rules depending on how long you held it. This makes the exact holding period the single most important factor in whether your windfall is tax-free or fully taxable.
QSBS Exclusion Rules
| Condition | Tax Treatment |
|---|---|
| QSBS, held 5+ years | Excluded up to greater of $10M or 10x basis |
| Not QSBS, held 1+ years | Standard long-term capital gains rate |
| Held under 1 year | Taxed as ordinary income |
Stock acquired before September 27, 2010 qualifies for only a 50% or 75% exclusion depending on the acquisition date, and the excluded portion may also trigger an alternative minimum tax preference — this tool assumes post-2010 stock with the full 100% exclusion rate.
Frequently Asked Questions
Stock issued directly by an eligible US C-corporation with under $50 million in gross assets at issuance, in an active qualifying business.
For stock acquired on or after July 4, 2025 (OBBBA): 50% at 3 years, 75% at 4 years and 100% at 5 years, capped at the greater of $15 million or 10 times your adjusted basis. For stock acquired before that date: 100% at 5 years, capped at the greater of $10 million or 10 times basis. Figures as of July 2025.
Stock acquired before July 4, 2025 loses the exclusion entirely before 5 years. Stock acquired on or after that date gets a partial exclusion from 3 years (50%) and 4 years (75%); below 3 years there is no exclusion and the gain is taxed under ordinary short-term or long-term rules.
※ Estimate only. QSBS eligibility involves detailed corporate-level requirements — verify your stock's status and consult a tax professional before relying on this exclusion.