QSBS Calculator: Section 1202 Exclusion and Tax (2026)
How much of your gain on qualified small business stock is tax free, what is still taxed, and what you keep: both the pre-July 5, 2025 rules and the new 50/75/100% steps, with the 28% rate, the 3.8% tax and your state.
By Hans Goldstein, EA · Updated October 13, 2026
Your result
$10,000,000 of your gain is excluded. You keep $18,224,443.
Your gain under Section 1202
The tax, line by line
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How the QSBS calculator works
Section 1202 lets a non-corporate shareholder leave part or all of the gain on qualified small business stock out of income. The calculator finds which set of rules your stock falls under from the date you acquired it, checks the holding period on the sale date, applies the cap, and prices whatever is left with the 2026 federal brackets (IRS Rev. Proc. 2025-32), the 3.8% net investment income tax and your state.
| Acquired | Excluded | Cap per company |
|---|---|---|
| After Sept. 27, 2010, on or before July 4, 2025 | 100%, held more than 5 years | Greater of $10,000,000 or 10x basis |
| After July 4, 2025 | 50% at 3 years, 75% at 4 years, 100% at 5 years or more | Greater of $15,000,000 (indexed after 2026) or 10x basis |
| On or before Sept. 27, 2010 | 50% or 75%, with a 7% AMT preference | Not modeled here |
Sources: IRC §1202 as amended by Public Law 119-21, section 70431 (signed July 4, 2025); IRC §1(h)(4) and (h)(7) for the 28% rate; IRC §57(a)(7) for the AMT preference; IRC §1411 for the 3.8% tax.
Worked example 1: a founder's $22 million sale (pre-July 2025 stock)
A married founder acquired shares at original issue on June 3, 2019 with a $1,000,000 basis and sells them on November 16, 2026 for $22,000,000 after costs. Other income is $300,000; they live in New York. Held more than 5 years, so 100% of eligible gain is excluded. The cap is the greater of $10,000,000 or 10 times basis ($10,000,000), so $10,000,000 is excluded and $11,000,000 is taxed as long-term capital gain.
| Gain | $21,000,000 |
| Excluded under Section 1202 | $10,000,000 |
| Federal income tax | $2,212,347 |
| Net investment income tax | $418,000 |
| New York tax | $1,145,210 |
| Total tax (computed October 13, 2026) | $3,775,557 |
| Without the exclusion | $7,185,557 |
| QSBS keeps them | $3,410,000 |
Basis is the lever: with a basis above $1,000,000 the 10x test would raise the cap. Founders with large gains often gift shares to family trusts before a sale so each holder has its own cap; that is planning to do years ahead, with counsel.
Worked example 2: new-rules stock sold at year 4 in California
Stock acquired September 15, 2025 with a $2,000,000 basis, sold October 1, 2029 for $20,000,000: held 4 full years, so 75% of eligible gain is excluded. The cap is the greater of $15,000,000 or 10x basis ($20,000,000), so all $18,000,000 of gain is eligible: $13,500,000 excluded and $4,500,000 taxed as Section 1202 gain at up to 28%. Federal tax is $1,285,570 plus $171,000 of net investment income tax. California does not follow Section 1202 and taxes the whole gain: $2,363,263. Total: $3,819,833. Waiting to the 5-year mark would keep them $1,456,570 more, all of it federal. (2029 figures use 2026 law held flat.)
Checks the calculator assumes you pass
Original issue (not bought from another shareholder), a domestic C corporation for substantially all of your holding period, at least 80% of assets used in a qualified trade or business (not professional services such as health, law, accounting, consulting or financial services, and not banking, farming or hospitality), the gross-asset test when the stock was issued, and no disqualifying redemptions around the issue date (IRC §1202(c)-(e)). A failed check means ordinary capital gain treatment. These are fact questions for your attorney and CPA. More background: QSBS and California and qualified small business stock.
When QSBS does not cover the whole gain
Gain above the cap, stock that misses the holding period, or a sale that is part stock and part asset is taxed the usual way. If the buyer pays over time, an installment sale spreads that taxable part over the years you are paid; the business sale tax calculator shows what that keeps you. For a whole-company exit, see a structured sale of a business.
QSBS questions
How much gain can I exclude under Section 1202?
The greater of a dollar cap or 10 times your basis in the shares sold. The dollar cap is $10,000,000 per company for stock acquired on or before July 4, 2025 and $15,000,000 for stock acquired after that date (indexed for inflation after 2026), less any gain you already excluded from the same company.
How long do I have to hold QSBS?
Stock acquired on or before July 4, 2025 must be held more than 5 years for the exclusion. Stock acquired after July 4, 2025 qualifies in steps: 50% of the gain is excluded after 3 years, 75% after 4 years and 100% after 5 years (IRC 1202(a)(5), added by Public Law 119-21).
What tax rate applies to QSBS gain that is not excluded?
Gain above the cap is ordinary long-term capital gain at 0%, 15% or 20%. When only 50% or 75% is excluded, the rest of the eligible gain is Section 1202 gain, taxed at up to 28% (IRC 1(h)(4) and (h)(7)). Both are net investment income, so the 3.8% tax can apply. The excluded part is not taxed at all.
Does my state follow the QSBS exclusion?
Most states start from federal income and follow it. California, Pennsylvania, Alabama and Mississippi are generally reported to tax the full gain, so the calculator applies their tax to the whole gain. Rules change; confirm your state with your CPA before you sell.
Is excluded QSBS gain subject to the alternative minimum tax?
Not for stock acquired after September 27, 2010. The 7% AMT preference in IRC 57(a)(7) now applies only to stock acquired on or before that date.
What if I sell before the holding period ends?
The gain is taxed normally. A Section 1045 rollover lets you reinvest the proceeds in other qualified small business stock within 60 days and carry the holding period forward, if you held the original stock more than 6 months.
Sources
- IRC 1202, as amended by Public Law 119-21, section 70431 (July 4, 2025), read October 13, 2026: Cornell LII
- IRC 57(a)(7), AMT preference for pre-September 28, 2010 stock: Cornell LII
- IRS Rev. Proc. 2025-32, 2026 brackets and capital gain breakpoints (October 2025): irs.gov
- IRS Publication 550, Investment Income and Expenses (2025), section on Section 1202 exclusion: irs.gov
- California Revenue and Taxation Code 18152.5 and FTB guidance after Cutler v. Franchise Tax Board (2012): ftb.ca.gov. Pennsylvania, Alabama and Mississippi non-conformity per state guidance and practitioner surveys, October 2026; confirm with your CPA.
Related: California QSBS · qualified small business stock · business sale tax calculator · selling a C corporation · all calculators · structured sale calculators
Educational estimate only, not tax, legal or investment advice. Whether stock qualifies is a legal question the calculator cannot answer; it assumes the checks above are met when the box is ticked. Figures use 2026 federal law (Rev. Proc. 2025-32) and the state you choose. Your CPA should confirm any number before you act. Hans Goldstein, EA.