Qualified Small Business Stock (QSBS) § 1202 Calculator 2026

What Is the § 1202 QSBS Exclusion?

The Qualified Small Business Stock (QSBS) exclusion under Internal Revenue Code § 1202 lets non-corporate taxpayers exclude 50%, 75%, or 100% of capital gain from federal income tax on the sale of stock issued by a qualifying domestic C corporation, provided the stock is held for at least five years. The applicable exclusion depends on the acquisition date: stock acquired before February 18, 2009 qualifies for 50% exclusion; stock acquired between February 18, 2009 and September 27, 2010 qualifies for 75% exclusion; and stock acquired after September 27, 2010 qualifies for 100% exclusion. Source: 26 U.S.C. § 1202.

The maximum gain that can be excluded per issuer is the greater of $10,000,000 or 10 times the taxpayer's original aggregate basis in the stock issued by that corporation. For a founder with $100,000 of basis, the cap is $10 million. For a founder with $5 million of basis from later rounds, the cap rises to $50 million (10 × $5M). The cap is per taxpayer per issuer per lifetime — not per year — so prior excluded gains reduce the remaining cap. Last updated: May 3, 2026.

The Five Eligibility Tests Stock Must Pass

Section 1202 imposes five concurrent eligibility tests on the stock and the issuing corporation. First, the stock must be issued by a domestic C corporation (S corps, LLCs, partnerships, and foreign corporations are excluded). Second, the corporation's aggregate gross assets must not exceed $50 million immediately before and after issuance under § 1202(d)(1). Third, the stock must be acquired at original issuance — not on the secondary market — in exchange for cash, property other than stock, or services to the corporation. Fourth, the corporation must use at least 80% of its assets in the active conduct of a qualified trade or business throughout substantially the entire holding period. Fifth, certain industries are excluded from "qualified trade or business" treatment under § 1202(e)(3): law, health, accounting, actuarial science, performing arts, consulting, athletics, financial services, brokerage, banking, insurance, investing, farming, mining, hospitality (hotels and restaurants), and any business where the principal asset is the reputation or skill of an employee.

Engineering, architecture, software, biotech, manufacturing, and most technology and consumer-products companies generally qualify. The 80% asset test must be met substantially throughout the holding period — a corporation that pivots into a disqualified business late can taint QSBS status. Founders should request annual QSBS attestation letters from the company tax advisor to document compliance.

AMT Preference and 3.8% NIIT Treatment

The 100% exclusion (post-September 27, 2010 stock) is the cleanest version: the excluded gain is exempt from regular tax, exempt from the 28% rate that applies to other § 1202 stock, exempt from the AMT preference, and exempt from the 3.8% Net Investment Income Tax under § 1411(c)(1)(A)(i). The 50% and 75% exclusions are less generous: 7% of the excluded amount is treated as a preference item on Form 6251 and increases AMT, the non-excluded portion is taxed at a special 28% rate (not the normal 20% LTCG), and the entire gain is subject to NIIT. This is why the 100% exclusion era stock — which now covers any QSBS issued in the past 14+ years — is dramatically more valuable than legacy 50% or 75% stock.

For a founder with $1,000,000 of basis selling for $11,000,000 in 2026 (10× cap = $10M), holding 100% exclusion stock saves roughly $2.38 million in federal tax (20% LTCG × $10M excluded gain + 3.8% NIIT savings on the same). The remaining $0 gain has no federal income tax. The same exit on legacy 50% stock would save only ~$1.4M after AMT preference and would still owe ~$1.4M of federal tax — a $1M difference based purely on the acquisition date.

Section 1045 Rollover and State Conformity

If the holding period is less than five years, taxpayers can defer the gain by reinvesting the proceeds into other QSBS within 60 days under IRC § 1045 — preserving the original holding period and resetting the basis in the new QSBS. This is most useful for founders selling early to a strategic acquirer who want to redeploy into another startup investment without paying capital gains tax. The new investment must itself qualify as QSBS, including the $50M gross-asset test, C-corp form, and active business requirements.

State conformity to § 1202 is uneven. California and Pennsylvania do not recognize the exclusion at all, so residents pay full state tax on the gain. New Jersey, Mississippi, Alabama, and Hawaii also have non-conformity issues. Most other states either fully conform or partially conform. Plan your residency before the sale year to minimize state-level capital gains tax — a move from California to a no-state-tax state (Florida, Texas, Nevada, Wyoming, Tennessee, Washington) before sale can be worth millions on a large QSBS exit. Always confirm domicile rules with a qualified tax attorney.