QSBS Calculator (Section 1202)

Section 1202 has always been the most valuable provision in the code for founders and early employees, and also the most all-or-nothing: hold qualifying stock for more than five years and the gain is excluded, sell at four years and eleven months and none of it is. The One Big Beautiful Bill Act changed that, and most published guidance has not caught up.

For stock acquired after 4 July 2025 there is now a tiered exclusion — 50% at three years, 75% at four, 100% at five. The per-issuer cap rose from $10,000,000 to $15,000,000, with indexation from 2027. And the ceiling on the company's gross assets, which decides whether the stock ever qualified in the first place, rose from $50,000,000 to $75,000,000.

What catches people is that these three changes are gated on two different date tests. The tiered exclusion and the higher cap turn on when you ACQUIRED the stock. The gross assets ceiling turns on when the company ISSUED it. For someone who bought shares from an early employee in 2026, the stock was issued years earlier — new tiers and new cap, old assets ceiling.

The gross assets point deserves separate treatment, because it is the one place where reading the statute carefully still gets you the wrong answer.

The codified text of section 1202(d)(1) now reads "$75,000,000" with no date qualifier anywhere in the subsection. Nothing in the section tells you that the figure is conditional. The limitation lives in section 70431(c)(3) of the Act itself, an uncodified effective-date provision: the amendments "shall apply to stock issued after the date of the enactment of this Act". Because it was never codified into title 26, it does not appear in the section text that most references reproduce.

The practical consequence is significant. A company that grew past $50,000,000 in assets in 2023 stopped issuing QSBS then, and stock it issued afterwards does not qualify no matter when you bought it. The higher ceiling reopened the door only for shares issued from July 2025 onwards. Treating $75,000,000 as the universal test will tell a shareholder their stock qualifies when it does not, which is the most expensive kind of error this section can produce.

The new three-year tier is genuinely useful — before it, an early sale excluded nothing. But "50% excluded" reads better than it computes, for a reason that lives in a different section of the code entirely.

The portion that is not excluded is defined by section 1(h)(7) as "section 1202 gain", and section 1(h)(4) places it in the 28-percent rate group alongside collectibles. It is not taxed at the 20% long-term capital gains rate that would otherwise apply to a long-held asset. Add the 3.8% net investment income tax and the taxable half carries 31.8% federal.

So a 50% exclusion on a $10,000,000 gain does not halve a 23.8% bill. It leaves $5,000,000 taxed at 31.8%, which is around $1,590,000 — against roughly $2,380,000 with no exclusion at all. The exclusion is worth a third of the tax, not half. That arithmetic is precisely what makes the wait from three years to five worth computing rather than assuming, and it is the calculation this page exists for.

One rule runs pleasantly the other way. The old 50% exclusion carried an alternative minimum tax preference under section 57(a)(7), equal to 7% of the excluded amount. The same Act amended that section to reach only stock acquired on or before 27 September 2010, so the new partial tiers carry no preference at all. Anyone reasoning by analogy from the pre-2010 rules will over-estimate the tax.

The per-issuer limit is the greater of a dollar figure or ten times your basis in the stock at original issue. Founders almost always land on the dollar side, because their basis is nominal — ten times nothing is nothing. The 10x alternative is built for someone who put real money in: an investor with $5,000,000 of basis has a $50,000,000 cap, far above the dollar limit. It is measured at original issue, so subsequent additions to basis do not raise it.

The cap is also a lifetime figure per company rather than per sale, reduced by gain already excluded from that issuer in earlier years. And the drafting deliberately prevents stacking the old and new limits: for post-2025 stock the $15,000,000 is reduced not only by prior-year exclusions but by same-year gain on pre-2025 stock from the same company, so a shareholder holding both vintages cannot claim $10,000,000 and $15,000,000 in the same year.

Everything above assumes the stock qualifies at all, and that is where most section 1202 positions actually fail. The company must be a domestic C corporation; at least 80% of its assets by value must be used in an active qualified trade or business; and entire industries are excluded by statute — health, law, engineering, architecture, accounting, actuarial science, performing arts, consulting, athletics, financial services, brokerage, banking, farming, extraction and hospitality. Certain redemptions of stock near the issue date disqualify an issuance outright, and the rules reach purchases from other shareholders as well as from the company. None of that is arithmetic, and none of it can be settled by a calculator.