Qualified Small Business Stock (QSBS) After-Vest Calculator
Section 1202 QSBS lets you exclude up to $10M of capital gain from federal tax if you hold qualifying small business stock 5+ years. Check whether your vested startup shares qualify based on company size and your hold period.
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| §1202 Exclusion Cap (greater of $10M or 10x basis) | — |
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Section 1202 QSBS Eligibility
Section 1202 of the Internal Revenue Code allows individuals to exclude up to $10M (or 10x basis, whichever is greater) of capital gain on the sale of qualified small business stock (QSBS). For stock acquired after September 27, 2010, 100% of the gain is excluded.
To qualify: (1) C-corporation original issuance stock, (2) acquired at original issuance for cash, property, or services, (3) company gross assets ≤$50M at the time of issuance, (4) at least 80% of assets used in active trade/business (not investments), (5) held more than 5 years.
Source: irs.gov IRC §1202 + Treasury Regulation 1.1202
Common Acquisition Routes
Direct stock purchase at company formation (founder shares). Stock options exercised (ISO or NSO — the bargain element is treated as paid-in for §1202 timing). RSUs settled in shares (acquisition date = vest/settlement date).
Convertible note conversions, SAFE conversions, and warrant exercises all reset the 5-year clock to the conversion/exercise date. Plan your liquidity events around the 5-year horizon.
State Conformity
California, Pennsylvania, New Jersey, New York, Massachusetts, and a few other states don't conform to §1202 — you still owe state tax on the gain. Florida, Texas, Nevada, Washington, Wyoming (no state income tax) effectively conform.
For California residents, the savings is federal only (20% + 3.8% NIIT). A $10M California exit nets $7.6M federal savings — still huge but state tax still applies. Some founders move to no-tax states 12+ months before exit to avoid CA tax (requires bona fide residency change).
Section 1045 Rollover
If you sell QSBS before 5 years, you can roll the gain into new QSBS under §1045 and reset the holding period. Allows continued tax deferral if you redeploy into another qualifying small business.
Less commonly used than §1202 itself, but valuable for serial founders. Consult a QSBS specialist CPA before relying on this — documentation and timing requirements are strict.