QSBS Calculator: Section 1202 Tax Exclusion Estimate

Enter your basis, the expected sale price, the date you acquired the shares and a few facts about the company to see whether a sale qualifies for the Section 1202 exclusion, how much of the gain is excluded, and how much federal tax that saves.

The quick answer: if you hold qualified small business stock (QSBS) long enough, Section 1202 excludes up to 100% of the gain from federal income tax and from the 3.8% net investment income tax, capped per company at the greater of $10 million ($15 million for stock acquired after July 4, 2025) or 10 times your basis. The One Big Beautiful Bill Act (P.L. 119-21, §70431) added a 3-, 4- and 5-year phase-in, the $15 million cap and a $75 million gross-asset ceiling for stock issued after July 4, 2025; the rules are in 26 U.S.C. §1202.

This calculator is for informational purposes only, and its results are estimates. QSBS status depends on facts about the company that only its records can prove, so treat the result as a planning number, not a determination.

What the calculator asks for

Ownership percentage is shown for context only. Section 1202 has no ownership ceiling, so the calculator does not use it to test eligibility.

How the exclusion percentage depends on the acquisition date

The share of the gain you can exclude was set when you acquired the stock, and the holding period you need depends on the same date.

"More than 5 years" means the earliest qualifying sale is the day after the fifth anniversary of the acquisition. For stock acquired after July 4, 2025, the statute says "at least 3 years", so a sale on the third anniversary qualifies. If you sell before the required period, none of the gain is excluded and the whole gain is taxed as an ordinary long-term (or, under one year, short-term) gain.

When the exclusion is 50% or 75%, the non-excluded half or quarter of the capped gain is "section 1202 gain", which §1(h) taxes at a maximum 28% rate instead of 20%. For stock acquired before September 28, 2010, 7% of the excluded gain is also an alternative minimum tax preference item; the calculator shows that amount so you can carry it to the AMT calculator.

The per-issuer cap

The cap is on the gain you can take into account from one company in one year. It is the greater of:

• The dollar limit: $10,000,000 for stock acquired on or before July 4, 2025, or $15,000,000 for stock acquired after that date, reduced by eligible gain from the same company that you took into account in earlier years. The $15 million figure is indexed for inflation for tax years beginning after 2026; the calculator uses $15 million.
• 10 times basis: ten times the adjusted basis of the shares you sell this year, counting only basis you had when the shares were issued.

The exclusion percentage is applied to the gain under the cap, and any gain above the cap is an ordinary capital gain taxed at regular rates.

Three points that trip people up:

1. It is a per-company limit, not a lifetime limit. You can exclude $10 million or $15 million of gain from each qualifying company you invest in. "Gain already excluded" in the calculator means gain from this company only.
2. A joint return does not double it. Married couples filing jointly share one cap per company; §1202(b)(3)(B) then splits the gain used equally between the spouses for later years. Spouses who each hold their own shares and file separately each get half the cap: $5 million, or $7.5 million for post-July 4, 2025 stock.
3. Pre- and post-OBBBA gain from the same company counts together. Gain you excluded on older shares reduces the $15 million limit for newer shares of the same company.

Which stock qualifies

The calculator checks four things it can test from your inputs and lists three it cannot.

Tested:

• Holding period, as in the table above.
• Gross-asset test: the company's aggregate gross assets could not exceed $50 million at any time before and immediately after your shares were issued, or $75 million for stock issued after July 4, 2025 (§1202(d)(1), as amended by P.L. 119-21 §70431(c)). Gross assets means cash plus the adjusted tax basis of other property, with contributed property counted at its value when contributed. The $75 million amount is indexed after 2026.
• Excluded fields: a business in health, law, engineering, architecture, accounting, actuarial science, performing arts, consulting, athletics, financial services or brokerage, banking, insurance, financing, leasing or investing, farming, certain mining and oil and gas, or hotels and restaurants is not a qualified trade or business (§1202(e)(3)). If you pick one of those industries, the calculator treats the stock as not qualifying.
• How you acquired the shares: QSBS must be acquired at original issue from the company, for money, property or services. Shares you get by exercising an option are issued to you by the company, so they can qualify; the holding period starts at exercise. Common stock received by converting QSBS preferred of the same company keeps its status and its holding period (§1202(f)). Shares received by gift or at death keep the donor's status and holding period (§1202(h)). Shares bought from another shareholder are never QSBS.

Not tested (you must confirm):

• The issuer was a domestic C corporation when the shares were issued and for substantially all of your holding period.
• At least 80% of the company's assets were used in the active conduct of a qualified business during substantially all of your holding period.
• The company did not make disqualifying redemptions from you within two years before or after issuance, or significant redemptions from anyone within one year before or after.

How the tax comparison works

Large QSBS gains almost always fall in the top brackets, so the calculator assumes them:

• Without QSBS: the full gain at 20% (37% if you held the shares one year or less), plus 3.8% net investment income tax.
• With QSBS: the excluded gain is not in gross income, so it bears neither income tax nor NIIT. Section 1202 gain from a 50% or 75% exclusion is taxed at 28%; gain above the cap at 20%. NIIT applies to everything that is recognized.
• State tax uses a flat approximate top rate. California taxes the whole gain; New Jersey follows the exclusion for tax years beginning on or after January 1, 2026; most states that start from federal adjusted gross income follow it.

If your other income is modest, part of a smaller gain may fall in the 0% or 15% bracket and the savings will be lower. Run the non-excluded portion through the capital gains calculator for a bracket-by-bracket figure.

Worked examples

Founder shares acquired in 2019

You bought 1,000,000 founder shares for $10,000 on January 15, 2019, and sell them for $5,010,000 on December 15, 2026.

• Gain: $5,010,000 − $10,000 = $5,000,000
• Holding period: acquired before July 5, 2025, held more than 5 years, so the exclusion is 100%
• Cap: greater of $10,000,000 or 10 × $10,000 = $100,000, so $10,000,000
• Excluded gain: 100% × $5,000,000 = $5,000,000; federal tax $0
• Without QSBS: $5,000,000 × 20% = $1,000,000 plus $5,000,000 × 3.8% = $190,000, for $1,190,000

If you lived in California, the state would still tax the full $5,000,000.

Seed investment after the new law, sold at four years

You invested in a seed round on September 1, 2025 with a basis close to zero and sell for $20,000,000 on September 1, 2029.

• Holding period: acquired after July 4, 2025 and held 4 years, so the exclusion is 75%
• Cap: $15,000,000 (10 × basis is negligible)
• Excluded gain: 75% × $15,000,000 = $11,250,000
• Section 1202 gain at 28%: $15,000,000 − $11,250,000 = $3,750,000, tax $1,050,000
• Gain above the cap at 20%: $20,000,000 − $15,000,000 = $5,000,000, tax $1,000,000
• NIIT: ($3,750,000 + $5,000,000) × 3.8% = $332,500
• Total federal tax: $2,382,500, against $4,760,000 without QSBS

Waiting one more year, to September 1, 2030, would raise the exclusion to 100% of the $15,000,000 cap and cut the federal tax to $1,190,000 (20% plus NIIT on the $5,000,000 above the cap).

High-basis investment where 10x basis wins

An angel invested $2,000,000 in 2018 and sells for $40,000,000 in 2026. Ten times basis is $20,000,000, which beats the $10,000,000 dollar limit, so up to $20,000,000 of the $38,000,000 gain is excluded and $18,000,000 is taxed at 20% plus NIIT.

Planning moves the calculator points to

Wait for the next anniversary. For post-July 4, 2025 stock, each anniversary between years 3 and 5 raises the exclusion by 25 points. For older stock, a sale one day early loses the whole exclusion.

Gifts to family members. Gifted QSBS keeps its status and holding period, and each recipient has a separate per-issuer cap. A gift uses your $19,000 annual exclusion and then your $15,000,000 lifetime exemption for 2026 (IRS estate and gift tax updates); the gift tax calculator shows the Form 709 effect. Gifts to a spouse don't create a new cap for a couple filing jointly.

Section 1045 rollover. If you sell QSBS you have held more than six months and buy other QSBS within 60 days, you can elect to defer the gain. The replacement shares take a reduced basis and a tacked holding period.

State residency. Because California taxes the whole gain, the state where you live on the sale date matters. Moving shortly before a sale draws scrutiny; residency is decided on where your life is centered, not where your mail goes.

Reporting the exclusion

Report the sale on Form 8949 and Schedule D. The gain is reported in full, and the excluded amount goes on a separate line as a negative adjustment with code "Q", following the Schedule D instructions. Keep the company's written statement that it met the gross-asset and active-business tests, your purchase or exercise records, and board minutes showing the issuance. If you later sell more shares of the same company, track the eligible gain you have already used so you don't overstate the remaining cap.

For the wider set of strategies (holding periods, loss harvesting, opportunity zones), see capital gains tax strategies, and compare deferral options with the opportunity zone calculator.