Most founders learn about QSBS after they sell. By then it's too late.
The QSBS Exit Playbook: How Section 1202 Treats the Gain on Startup Stock
The One Big Beautiful Bill Act just raised the exclusion, added a tiered holding period, and expanded who qualifies. Here's how Section 1202 can take a large part of your exit out of federal tax.
What Just Changed
QSBS Under the One Big Beautiful Bill Act (PL 119-21)
Signed July 4, 2025. Applies to stock issued after July 4, 2025. Existing QSBS stock retains prior rules.
| Provision | Before OBBBA | After OBBBA |
|---|
| Gain exclusion cap per taxpayer, per company | $10,000,000 | $15,000,000 |
| Holding period for full exclusion | 100% only after 5+ years | 50% at 3yr, 75% at 4yr, 100% at 5yr |
| Company gross asset threshold | $50,000,000 | $75,000,000 |
| Inflation adjustment | No | Yes (starting 2027) |
| Opportunity Zones | Expiring 2026 | Permanent for investments after 2026 |
Does Your Business Qualify?
QSBS Qualification Checklist (Section 1202)
✓C-Corporation status. The company must be a C-Corp (not S-Corp, not LLC). S-Corp shares never qualify; only shares issued after converting to a C corporation can.
✓Gross assets of $75M or less at all times before and right after issuance (for stock issued after July 4, 2025; $50M before). Most small and mid-sized businesses qualify.
✓Active business. At least 80% of assets must be used in the active conduct of a qualified trade or business. No holding companies.
✓Stock acquired at original issuance. You received the stock directly from the company (not purchased on a secondary market).
✓Held for 3+ years (new tiered exclusion: 50% at 3 years, 75% at 4 years, 100% at 5+ years) (stock acquired after July 4, 2025; earlier stock: more than 5 years).
✗Excluded industries: Businesses in health, law, engineering, architecture, accounting, actuarial science, consulting, performing arts, athletics, financial services and brokerage don't qualify. Neither does any business whose principal asset is the reputation or skill of its employees, or banking, insurance, financing, leasing, investing, farming, mining, or hotels and restaurants.
Family Stacking: Multiply the $15M Exclusion
Each child and each non-grantor trust you give shares to gets its own QSBS limit. Spouses filing jointly share one limit. Complete the gifts before any sale is agreed. $15M limit for stock acquired after July 4, 2025; $10M for earlier stock.
You alone$15M excluded
+ 2 adult children (gift complete before any sale is agreed)$45M excluded
+ 2 non-grantor trusts (gift complete before any sale is agreed; each trust needs different beneficiaries or a real non-tax purpose, or IRC 643(f) may treat the two trusts as one)$75M+ excluded
Tax saved on $45M exit at 23.8%
$10,710,000
Only for stock acquired after July 4, 2025 and sold after 5 years, so no such sale can happen before July 2030. For stock acquired before July 5, 2025, the limit is $10M each: $30M excluded, $7,140,000 saved. Shares you give away are gifts: give them while they're worth little, because their value at the time of the gift uses your $15M lifetime gift exclusion, and gift tax runs at 40% above it.
This is how families keep generational wealth. One structure. Planned years before the exit.
Beyond QSBS: Opportunity Zone Reinvestment
If your exit gains exceed the QSBS exclusion, you can defer and reduce additional capital gains by reinvesting in a Qualified Opportunity Zone Fund (QOF). Invest gains in a Qualified Opportunity Fund within 180 days. For investments made after 2026 the gain is deferred 5 years and reduced 10% (30% for rural funds), and growth in the fund is tax-free after 10 years. Gain invested in 2026 is still recognized on December 31, 2026. With QSBS you may exclude up to $10M or $15M of gain (depending on when you got the stock), and defer tax on the rest through a Qualified Opportunity Fund.
Every move in your plan names the section of the Internal Revenue Code behind it and the form it lands on. Your CPA can file it, and you can check it.
The system behind every plan: seven areas of the tax code, checked against your facts, in the same order, every time.
Structure now. Not after the exit.
QSBS planning must happen before you sell. The earlier you start, the more options you have.
These strategies carry specific IRS requirements and are not guaranteed; benefits depend on your facts and proper execution. Educational information only, not tax, legal, or investment advice. Consult your tax professional.
