Section 1202 QSBS Exclusion
QSBS: 100% federal capital gains exclusion (Sec 1202). Hold 5+ years. Original C-corp issuance. $10M cap or 10x basis. Stacks across taxpayers.
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Section 1202 Qualified Small Business Stock (QSBS) provides up to 100% federal capital gains tax exclusion on the sale of qualifying small business stock. Requirements: 5+ year hold, original issuance from C-corp, business under $50M assets at issuance. Capped at $10M or 10x basis. One of the most powerful tax-saving provisions in US tax code.
QSBS Requirements
Must be C-corporation (not LLC, not S-corp). Original issuance — not bought from secondary market. Company under $50M gross assets at issuance. Active business (not investment). Sector qualifications: most active businesses; excludes finance, hotels/motels, restaurants, professional services.
100% Exclusion (Acquired After Sept 2010)
Stock acquired Sept 28, 2010+: 100% federal exclusion on gain up to greater of $10M or 10x basis. Earlier acquisitions: 50% or 75% exclusion. State varies: most states conform (no state tax on excluded gain), but CA, NJ don't conform.
Stacking Strategy
$10M cap is per shareholder per company. Strategies: gift QSBS to spouse (doubles to $20M). Gift to trust for children (each gets own $10M cap). Gift to multiple trusts. Properly structured, can shield $50M+ in family wealth.
Last updated May 2026. Sources: IRS Section 1202.