QSBS / §1202 — Qualified Small Business Stock
Up to $10M (or 10x basis) of capital gains EXCLUDED from federal tax when you sell qualifying C-Corp stock held 5+ years.
The benefit
If your stock qualifies, you can exclude the GREATER of $10M or 10x your basis from federal capital-gains tax. Some founders structure 'QSBS stacking' across family members or trusts to multiply that exclusion.
Qualifying tests
Issuer must be a US C-Corporation, gross assets ≤ $50M when the stock was issued, and at least 80% of assets used in an active qualified trade (NOT services like law, health, accounting, finance, or hospitality). You must hold for 5 years.
Why founders care
On a $20M exit with a $0 basis, QSBS can save $2M–$3M+ of federal capital gains tax. State treatment varies — California and a few others don't conform.
Watch out for
- •Many startups convert from LLC to C-Corp and reset the 5-year clock.
- •SAFE notes and certain redemptions can taint qualification.
- •Get a written QSBS attestation from the company at issuance.
Educational only — not tax, legal, or investment advice. Talk through your specific situation with a qualified advisor.