QSBS Calculator (Section 1202)

For stock issued after 4 July 2025, the per-issuer cap is the greater of $15 million or ten times your aggregate adjusted basis in the stock disposed of that year, and the $15 million figure is indexed for inflation for tax years beginning after 2026. Stock issued on or before 4 July 2025 keeps the earlier $10 million cap. Because the limit runs per issuer rather than per lifetime, a founder who starts a genuinely separate company gets a fresh cap on that company's stock.

The old five-year cliff became a three-tier staircase for stock issued after 4 July 2025: at least three years excludes 50% of the eligible gain, at least four years excludes 75%, and five years or more excludes 100%. Stock issued on or before 4 July 2025 is unchanged and produces no exclusion at all until the full five years are met. That difference alone is often worth several million dollars on a large exit, which is why the issuance date is the first thing to establish.

Gain above the per-issuer cap is not section 1202 gain, so it is taxed at ordinary long-term capital gains rates — 20% for most founders on an exit of this size, or 15% in lower brackets — plus the 3.8% net investment income tax, giving 23.8% at the top. That is the same rate you would pay on any other long-term holding. The 28% rate applies only to the portion of eligible gain left unexcluded at the 50% and 75% tiers.

Section 1202 gain has its own maximum rate of 28% written into the capital gains rate structure, a legacy of the original 50% exclusion design. It applies to the taxable half of a 50%-tier sale or the taxable quarter of a 75%-tier sale, and the 3.8% net investment income tax sits on top, producing 31.8%. The practical consequence is that the effective federal rate on the whole gain is about 15.9% at the three-year tier and about 7.95% at the four-year tier — worse than the headline exclusion percentages suggest.

Gain excluded under the full 100% five-year exclusion is not an AMT preference item, so a five-year sale is clean. The lower tiers are not: 7% of the gain excluded at the 50% and 75% tiers is treated as an AMT preference, which can pull a large exit into alternative minimum tax and add liability the headline effective rate does not show. It is one of the strongest arguments for waiting to cross the five-year mark where the negotiating timetable allows it.

The cap is the greater of the flat figure or ten times your aggregate adjusted basis in the QSBS of that issuer disposed of in the year. For founder stock issued for a nominal sum, ten times almost nothing is still almost nothing, so the flat cap governs. For an investor who put real money in, the basis route can be far larger — $5 million invested supports a $50 million exclusion. Contributing appreciated property at original issuance can also lift basis, since basis for this purpose is generally the property's fair market value at contribution.

The issuer must be a domestic C corporation whose aggregate gross assets did not exceed $75 million immediately after the issuance, for stock issued after 4 July 2025, and it must use at least 80% of its assets in a qualified trade or business for substantially all of your holding period. The excluded sectors are extensive: health, law, engineering, architecture, accounting, actuarial science, performing arts, consulting, athletics, financial services and brokerage, plus farming, depletable natural resources, and hotels, motels and restaurants. LLCs, S corporations and non-US companies cannot issue QSBS unless they convert first.

Yes on the US side. Section 1202 turns on the character of the stock and on your being a non-corporate taxpayer, not on where you live, so a US citizen in London excludes the gain from Form 1040 exactly as a US resident would. The difficulty is the country you live in. The UK has no equivalent relief and taxes its residents on worldwide gains, so a UK-resident founder faces capital gains tax at 24% on the entire gain — and because the exclusion has removed the US tax, there is generally no US liability for a foreign tax credit to offset.

No. There is no UK equivalent and no treaty article that imports the exclusion, so HMRC charges capital gains tax on the full gain at 24% for a higher or additional-rate taxpayer. Business Asset Disposal Relief does not fill the gap either: it applies to qualifying UK trading company disposals, is capped at a £1 million lifetime limit, and charges 18% for disposals on or after 6 April 2026. On a fifteen-million-dollar exit that relief is immaterial. The residence position on completion day is usually worth more than every other planning point combined.

California, Alabama, Mississippi and Pennsylvania do not conform and tax QSBS gain in full, with California's top rate reaching 13.3%. Most other states start from federal taxable income and pick the exclusion up automatically, but conformity to the specific OBBBA amendments is a separate question — a state tied to an older version of the federal code does not adopt the 2025 changes without legislating. Founders leaving a non-conforming state need the residency severance to be complete before the sale, not during it.

A deferral for shareholders forced to sell before reaching a useful tier. If you have held the original QSBS for more than six months, you can reinvest the proceeds into replacement QSBS within 60 days and defer the gain. The replacement stock takes a reduced basis so the gain resurfaces later, but the holding period of the original stock tacks onto the replacement — which is the real value, because it lets a founder cashed out at two years reach the three-year or five-year tier much sooner. The election is made on the return for the year of sale.

It applies to the gain that is not excluded, and not to the gain that is. Excluded gain is removed from gross income entirely, so it falls outside net investment income. The taxable remainder at the 50% and 75% tiers carries the 3.8% surtax on top of the 28% rate, and gain above the per-issuer cap carries it on top of the ordinary 20% or 15% rate. For a US citizen abroad this is worth noting separately, because the net investment income tax cannot be offset by foreign tax credits.

Evidence of original issuance directly from the company, evidence that the aggregate gross assets test was met immediately after the issuance, and evidence that the active business test held throughout substantially all of your holding period. Buyers' counsel now asks for this routinely in diligence. The practical advice is to request a QSBS attestation from the company at issuance and to refresh it annually, because reconstructing a balance sheet position from five years earlier after a finance round, a recapitalisation and a change of auditor is considerably harder than it sounds.

It models the federal Section 1202 arithmetic — the cap, the tiers, the 28% rate, the 3.8% surtax and the AMT preference — together with a flat state rate and a 24% UK capital gains layer, and it assumes a single issuer and a single disposal in one tax year. It does not model AMT in full, earn-outs, installment sales, stacking through non-grantor trusts, Section 1045 rollovers, or the sterling translation of a dollar gain, which can itself create a gain in one currency and a loss in the other. Treat the output as a planning baseline and have the real exit modelled properly.