Short answer: for Qualified Small Business Stock (QSBS) acquired after July 4, 2025, founders and investors can exclude 50% of the gain after three years, 75% after four years and 100% after five years, up to a per-company cap that rose to $15 million (or ten times basis, if greater). Companies can also qualify with up to $75 million in gross assets, up from $50 million. Stock acquired earlier stays under the old rules.
Section 1202 of the tax code lets shareholders of qualifying C corporations exclude some or all of the gain when they sell stock they received at original issuance, if the company and the stock meet a series of requirements. For founders and early investors, it can be one of the most valuable tax benefits available at exit.
| Before July 5, 2025 | After July 4, 2025 | |
|---|---|---|
| Holding period | 100% exclusion after 5 years; nothing before | 50% at 3 years, 75% at 4 years, 100% at 5 years |
| Per-company cap | $10 million or 10x basis | $15 million (indexed for inflation from 2026) or 10x basis |
| Gross asset limit | $50 million | $75 million (indexed for inflation from 2026) |
Any gain that is not excluded is taxed at a maximum 28% rate under Section 1202.
Generally no. QSBS applies to stock in C corporations. Conversions are possible but need careful planning with advisors.
Stock acquired on or before July 4, 2025 generally stays under the prior rules.
No. Certain service businesses and other industries are excluded. Confirm eligibility with your tax advisor.
This article is general information, not tax or legal advice. Tax rules change and depend on your facts; review your situation with your CPA or tax advisor before acting.
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