See how much of your startup stock gain escapes federal tax under Section 1202, using the $10M or 10× basis cap, the five-year holding test, and the 23.8% rate on any taxable remainder.
Enter your details and press Calculate.
Situation: A founder sells shares held six years with a $50,000 basis, realising a $4 million gain. The corporation met the qualified small business tests when the stock was issued.
How it's computed: Because the stock was held more than five years and qualifies, the entire $4,000,000 falls under the exclusion cap of the greater of $10M or 10 × $50,000 = $500,000 — so the $10M cap applies and the full gain is excluded.
Excluded gain $4,000,000; taxable gain $0; federal tax on the gain $0 instead of roughly $952,000 without QSBS.
Situation: A founder sells for a $25 million gain with a $100,000 basis after seven years. The exclusion is capped, not unlimited.
How it's computed: The cap is the greater of $10,000,000 or 10 × basis ($1,000,000), so $10,000,000 is excluded. The remaining $15,000,000 is taxed at 20% plus 3.8% NIIT.
Excluded $10,000,000; taxable $15,000,000; estimated federal tax $3,570,000.
Situation: An investor realises an $8,000,000 gain on stock held only three years, with a $900,000 basis.
How it's computed: The five-year holding period is mandatory. Because the stock was held less than five years, no Section 1202 exclusion is available and the entire gain is taxed as ordinary long-term capital gain.
Excluded gain $0; taxable gain $8,000,000; estimated federal tax $1,904,000.
Qualified Small Business Stock lets you exclude gain from federal tax if the stock was issued by a domestic C-corp, held more than five years, and the corporation met the qualified small business tests at issuance.
cap = greater of $10,000,000, or 10 × your cost basis. Gain up to the cap is excluded; any excess is taxed at long-term capital gains rates plus NIIT.
For stock acquired after September 27, 2010, the exclusion is 100%. Stock from 2009-2010 gets 75%, and pre-2009 stock gets 50% with the excluded portion of older-vintage stock subject to AMT.
To claim Section 1202, the stock must satisfy every test below. Failing any one disqualifies the gain.
| Requirement | Test | Typical failure |
|---|---|---|
| Entity | Domestic C-corporation | LLC or S-corp shares do not qualify |
| Gross assets | ≤ $50M when stock was issued | Company grew past $50M before issuing |
| Holding period | More than 5 years | Sold too early or exchanged in a merger |
| Active business | 80% of assets used in a qualified trade | Too much cash, stock or real-estate holdings |
| Acquisition | Stock issued directly by the company | Bought from another shareholder |
Many states do not conform to Section 1202, so state tax may still apply to the full gain.
⚠️ Important: This calculator applies the federal Section 1202 rules using a 20% long-term capital gains rate plus the 3.8% net investment income tax. It does not model AMT on pre-2011 vintage stock, state non-conformity, basis adjustments, or the per-issuer aggregation rules for multiple sales. Confirm eligibility with a tax professional before relying on the exclusion.
QSBS planning matters most to founders, early employees who exercised stock options, and angel investors in C-corporations. A founder who takes a modest salary and a large equity stake typically has a small basis and therefore qualifies for the full $10 million cap — turning what would be a multi-million-dollar federal tax bill into zero.
Because the cap is per-taxpayer, married couples filing jointly each claim their own $10 million cap, and gifting shares to family members can raise the family's combined exclusion. This is one of the few remaining large federal tax breaks available to founders.
A long-term capital gain on non-QSBS stock is taxed at up to 20% federal plus 3.8% NIIT — a 23.8% total. A QSBS gain held over five years and under the cap pays 0% federal. On a $4 million gain the difference is roughly $952,000 in federal tax, before any state tax.