QSBS exclusion calculator
Section 1202 can exclude a large share of the gain on qualifying C corporation stock. This estimates how much.
- Exclusion earned
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- Exclusion cap
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- Gain excluded
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- Taxed as section 1202 gain
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- Taxed at regular rates
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- State tax
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- Total tax
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- Net after tax
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What this is actually calculating.
Qualified small business stock is one of the few genuinely large exclusions left in the federal code. If the stock qualifies, a substantial portion of the gain on sale can escape federal tax entirely, capped at the greater of ten million dollars or ten times your basis.
The rules are strict and unforgiving. The company must be a domestic C corporation, it must have been under the gross asset threshold when the stock was issued, the stock must have been acquired at original issue, and the holding period must be satisfied. Recent legislation introduced tiered exclusions at three, four and five years for stock acquired after its enactment.
The parts that decide the answer.
The entity type is decided years earlier
QSBS applies to C corporation stock. An S corporation or an LLC does not qualify, and converting later does not make prior appreciation eligible.
Original issue means from the company
Stock bought from another shareholder generally does not qualify, however small the company was at the time.
Pennsylvania taxes the whole gain
Pennsylvania does not follow Section 1202: the flat 3.07% applies to the entire gain, including the part the federal exclusion removes. California, New Jersey, Alabama and Mississippi are also out of step, each in their own way.
Two different rates on what is left
Gain inside the cap that the percentage did not reach is section 1202 gain and carries the 28% maximum rate. Gain above the cap is ordinary long-term capital gain at 15 or 20%, because the dollar limit blocks it rather than the percentage.
Before you rely on it.
Does this replace tax advice?
No. QSBS eligibility turns on facts about issuance, entity type and asset levels that this calculator does not test. Confirm with your CPA or tax counsel.
What is the cap?
The greater of the flat per-issuer amount or ten times your adjusted basis in the stock. The flat amount is ten million dollars for stock acquired on or before July 4, 2025 and fifteen million for stock acquired after it, indexed for inflation from 2027. It is a lifetime figure per issuer, so gain you have already excluded from the same company reduces what is left.
What changed recently?
For stock acquired after the One Big Beautiful Bill Act, partial exclusions became available at three years (50%) and four years (75%), with the full exclusion still at five. The per-issuer cap rose to fifteen million and the gross asset test to seventy-five million.
Why is gain above the cap taxed at a lower rate than gain inside it?
Because they are blocked by different rules. The 28% rate applies to what the statute calls section 1202 gain: gain that would have been excluded but for the exclusion percentage. Gain above the cap is stopped by the dollar limit instead, so it is ordinary long-term capital gain at 15 or 20% plus the net investment income tax.
Does this handle stock issued before 2010?
No. Stock acquired before September 28, 2010 carries a 50% or 75% exclusion rather than 100%, and the excluded part is an alternative minimum tax preference item. If your stock is that old, treat this as an upper bound and have your CPA run it.
About this calculator.
An illustration, not advice
This is an educational illustration, not investment, tax, or legal advice, and not a recommendation or projection of any particular result. It uses only the assumptions you enter.
Real returns are not this smooth
Where a return is involved it is treated as constant, which no real portfolio is. Actual results will differ, and a sequence of poor early returns can change an outcome substantially even when the average holds.
Nothing you type leaves your browser
Every calculation runs on your own machine. Nothing you enter is transmitted or stored, and none of it reaches me unless you ask for a PDF and give me your details.
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