Part B · Startup-relevant scheme
Qualified Small Business Stock Exclusion (Section 1202) (QSBS)
Internal Revenue Service
Other
IdeationPrototype / PoCSeed / Early-StageGrowth / Scaling
Section 1202 of the tax code lets noncorporate taxpayers exclude some or all capital gain from selling Qualified Small Business Stock, provided the issuing company and the stock meet specific requirements. The One Big Beautiful Bill Act (signed July 4, 2025) expanded these benefits significantly for stock issued after that date.
Type of support
Other
Best suited for
Any stage (matters most at exit)
Headline amount
Greater of $15M or 10x basis excluded
How much
Up to 100% capital-gains exclusion
Objectives
Encourage investment in small, active US C-corporations by substantially reducing or eliminating the tax cost of a successful exit for founders and early shareholders.
Who can apply?
- Stock must be issued directly by a domestic C-corporation with gross assets under a statutory cap ($75M under OBBBA for post-7/4/2025 stock, up from $50M previously) at issuance.
- Company must be an active qualified trade or business — excluded categories include businesses whose principal asset is an employee's reputation/skill (many professional services), plus banking, insurance, financing, leasing, investing, farming, and hospitality.
- Stock must be acquired at original issuance (not purchased secondhand) and held by the taxpayer.
What do you get?
- For stock issued after July 4, 2025: a tiered schedule — 50% exclusion at a 3-year hold, 75% at 4 years, 100% at 5 years.
- Gain cap: the greater of $15 million (indexed for inflation) or 10x the shareholder's basis, for post-7/4/2025 stock.
- Stock issued on or before July 4, 2025 keeps the prior rule: a strict 5-year hold for any exclusion, capped at $10 million or 10x basis, with no partial exclusion before 5 years.
How to apply
Not an application — confirm QSBS eligibility with tax counsel at formation and again before any sale, since eligibility depends on facts fixed at issuance (entity type, gross assets, business activity).
Key links
Details as most recently confirmed against the official source linked above. Deadlines, amounts and windows change — verify on the official portal before applying.