Qualified Small Business Stock (QSBS) Calculator
Calculate Section 1202 QSBS exclusion eligibility. Understand 100% capital gains exclusion for qualified small business stock held over 5 years, and $10M/10x investment limits.
Stock Investment Details
QSBS Eligibility
ELIGIBLE - 100% EXCLUSION
5-Year Test:PASS (5 years)
Original Issue:PASS
Size Test:PASS ($50M assets)
C Corporation:PASS
Gain Calculation
Purchase:$100000.00
Sale:$500000.00
Total Gain:$400000.00
Section 1202 Exclusion
$400000.00 TAX-FREE
Exclusion Percentage:100%
Max Exclusion Limit:$10000000.00
QSBS exclusion: 100% of gain excluded (if acquired after Sept 27, 2010). No federal capital gains tax.
QSBS Exclusion Limits
10x Investment Limit:Exclusion max = 10x cost
$10M Limit:Per issuer, per taxpayer
Maximum exclusion: Greater of 10x your investment OR $10M. Example: Invest $100K, max exclusion = $1M (10x). Invest $2M, max exclusion = $20M (10x exceeds $10M).
QSBS Requirements
- C Corporation: Must be C corp. S corps, partnerships, LLCs do NOT qualify. Check company structure.
- Original Issue: Must purchase directly from company (founders, investors, employees). NOT secondary market (stock exchanges).
- Active Business: Company must actively conduct business. NOT holding company, investment company, real estate company.
- Asset Test: Aggregate assets less than $50M at time of stock issuance. Measured immediately after issuance.
- 5-Year Holding: Must hold stock more than 5 years. Sale before 5 years = NO exclusion (regular capital gains treatment).
- Stock Type: Common or preferred stock (not options, warrants, debt). Options/warrants converted to stock may qualify.
- Acquisition Date: Stock acquired after Sept 27, 2010 = 100% exclusion. Earlier acquisitions = 50% or 75% exclusion.
QSBS Exclusion History
- Post Sept 27, 2010: 100% exclusion. No AMT preference. Best treatment.
- Feb 18, 2009 - Sept 27, 2010: 50% exclusion. 7% AMT preference on excluded gain.
- Aug 10, 1993 - Feb 17, 2009: 75% exclusion. 7% AMT preference on excluded gain.
- Before Aug 10, 1993: No QSBS exclusion. Regular capital gains treatment.
- SECURE Act 2.0: Extended QSBS treatment to certain partnership interests (75% exclusion for rollover).
QSBS Details & Rules
- $10M Per Issuer: Limit applies per issuing company. Multiple QSBS investments in different companies = separate $10M limits.
- Per Taxpayer: Married filing jointly = 2 taxpayers = $20M limit. Separate per spouse.
- Non-QSBS Gain: Gain exceeding limit taxed as regular capital gain. 10x limit may be lower than $10M for small investments.
- State Tax: Some states follow federal QSBS exclusion, some do not. California: does NOT follow federal. State tax may still apply.
- Founders: Founders receiving stock for services may qualify if company meets QSBS requirements at issuance.
- Employee Stock: Employees receiving stock may qualify. Must be actual stock (not options until exercised).
- Rollover: Section 1045 allows rollover of QSBS gains into new QSBS. Defers recognition, maintains QSBS status.
QSBS Strategies
- Section 1045 Rollover: Sell QSBS, roll gain into new QSBS within 60 days. Defers recognition, maintains eligibility.
- Multiple Investments: Invest in multiple QSBS companies. Each has separate $10M limit. Maximize total exclusion potential.
- Hold 5 Years: Never sell before 5 years. Missed exclusion = significant tax cost. Plan exit timing.
- Original Issue Only: Avoid secondary market purchases. Only original issue qualifies. Buy directly from company.
- Verify QSBS Status: Get company certification that stock is QSBS. Check asset test, C corp status, active business.
- Married Filing Jointly: Two taxpayers = $20M limit. Both spouses can claim exclusion for same QSBS investment.
- Gift QSBS: Gift QSBS to family. Recipient gets your holding period, basis, QSBS status. May help with limit management.
QSBS Mistakes
- Sell Before 5 Years: Most common mistake. Early exit loses entire exclusion. Regular capital gains treatment.
- Secondary Market: Buy QSBS on secondary market. NOT original issue = no QSBS treatment.
- S Corp/LLC: Invest in S corp or LLC, assume QSBS treatment. Only C corps qualify.
- Assume All Startups Qualify: Not all startups are QSBS. Check asset test, business type, corporate structure.
- Exceed Limit: Large gain exceeds $10M/10x limit. Part of gain taxed. Plan multiple investments for larger exclusions.
- State Tax Surprise: Assume state follows federal QSBS. California, some states do NOT. State tax still applies.
- No Documentation: Fail to get QSBS certification from company. IRS audit requires proof of QSBS status.