QSBS Exclusion (2026)

QSBS is a manual eligibility problem

Qualified small business stock under Section 1202 can exclude a large fraction of gain on sale when strict corporate, issuance, holding, and active business tests are met. Software cannot safely guess whether your shares qualify from ticker symbols alone. This calculator takes your assumed exclusion percentage and dollar cap, applies them to gain you enter, and shows federal tax with and without exclusion.

You—not the tool—must confirm C-corporation issuer status, original issuance (not secondary market in most cases), five-year holding, gross asset limits at issuance, and that the business is not excluded (finance, farming, hospitality, etc.). When in doubt, stop at planning numbers here and confirm with a tax attorney before selling.

How to use the calculator

Step 1 — Enter total gain on sale

Sale proceeds minus adjusted basis for the QSBS lot you believe qualifies.

Step 2 — Enter exclusion percentage and cap

Current law allows varying exclusion percentages (often 50%, 75%, or 100% depending on acquisition date and legislative history). Enter the percentage and per-shareholder cap applicable to your facts—defaults are not imposed.

Step 3 — Read taxable gain remainder

Excluded gain is removed from federal capital gain tax; remainder stacks at long-term rates in the capital gains tax calculator.

2026 federal rate context

Non-excluded QSBS gain uses long-term capital gain rates (0%, 15%, 20%) plus potential 3.8% NIIT when modified AGI exceeds $200,000 single / $250,000 joint. Ordinary income brackets (Rev. Proc. 2025-32) do not apply to excluded gain because it is excluded—not recharacterized as ordinary.

Worked example

You enter 100% exclusion with a $10 million cap and $4 million eligible gain. Excluded gain: $4 million taxable federally as $0 on that portion. If exclusion were 50% on $4 million gain, $2 million remains taxable at long-term rates. If gain were $12 million with a $10 million cap, excluded amount may hit the cap with $2 million still taxable—exact cap mechanics depend on acquisition date rules you supply.

Stacking with other equity events

Founders often have NSO/ISO exercises, RSU vests, and QSBS sales in different years. Spreading sales across years can manage NIIT and bracket creep. Model option exercises in the stock options calculator and RSU vests in the RSU tax calculator.

AMT overlay

Large exclusions still affect alternative minimum tax calculations in some cases involving prior AMT credit or preference interactions. Use the AMT calculator when ISO exercises precede QSBS sales.

State nonconformity

California and other states may tax the full gain despite federal exclusion. Compare states with the state tax comparison tool if relocation is part of exit planning.

Common mistakes

• Assuming any startup stock is QSBS
• Buying on secondary market and expecting Section 1202 treatment
• Selling before five-year holding
• Ignoring aggregate and per-issuer caps
• Letting the calculator imply eligibility from gain alone

Related tools

Capital rate detail: capital gains tax calculator. Estate planning after liquidity: estate tax calculator. Job offer equity mix: job offer comparison calculator.

Documentation checklist before sale

Retain stock certificates or cap table entries proving original issuance, board resolutions, gross asset tests at issuance, and active business requirements during holding period. Section 1202 excludes gain only on stock held more than five years in many cases—partial sales require lot tracking. Rollovers under Section 1045 defer gain into replacement QSBS when executed within statutory windows.

Acquiring QSBS through gift or inheritance carries over holding period and basis rules that may affect exclusion percentage available to donee or heir—coordinate with gift and estate calculators when wealth transfers precede sale.

Partial sales and capital gain stacking

Selling half your QSBS lot may qualify exclusion on sold shares only if lot meets holding and issuer tests—remaining shares need independent qualification. Non-QSBS shares acquired in secondary purchase do not taint QSBS shares if lot identification clear on Form 8949.

Alternative minimum tax may apply to excluded gain in rare circumstances involving prior minimum tax credit—high-net-worth sellers should run parallel AMT projection when exclusion percentage under 100%.

State conformity map changes after relocation—move before sale from non-conforming state to no-tax state does not retroactively recharacterize federal exclusion but may change state tax on excluded gain for residency period rules.

Reading your results for qsbs

The interactive panel above shows a transparent calculation trace in cents—use it to sanity-check inputs before you rely on any number for decisions. Tax software at filing time may differ when every credit, limitation, and state conformity rule is applied in full. Treat output here as structured planning math aligned to 2026 federal reference data where noted, not as e-file output or professional advice.

When your situation includes items this specialized tool simplifies—multiple entities, prior-year carryforwards, treaty elections, or state nonconformity—layer those facts manually or with a preparer. The goal is to narrow uncertainty enough to ask better questions, not to eliminate the need for review when dollars are material.

Recordkeeping that survives scrutiny

Keep source documents (forms, statements, logs, confirmations) that support every input you typed. IRS and state audits often start from third-party reporting; your job is to reconcile 1099s, K-1s, and broker exports to the story you file. Digital backups with dates beat reconstructed spreadsheets created after an notice arrives.

For qsbs, retain worksheets year to year when carryforwards exist—loss carryovers, credit carryforwards, passive loss suspensions, and basis schedules die silently if you change preparers and lose history.

Related tools on this site

Capital gains: capital gains tax calculator. AMT: AMT calculator. Estate after liquidity: estate tax calculator.

2026 federal brackets and payroll context

Ordinary income tax brackets and standard deductions for 2026 follow IRS Rev. Proc. 2025-32 ($16,100 single / $32,200 joint standard deduction; seven marginal rates from 10% to 37%). Social Security tax applies at 6.2% on wages up to the $184,500 wage base; Medicare continues at 1.45% with Additional Medicare Tax above threshold wages. These layers stack independently from specialized rules modeled in this qsbs tool—run the federal income tax calculator when you need the full return picture.

Quarterly estimated tax may be required when withholding does not cover liability—see the quarterly estimated tax calculator. Year-end refund or balance due comparisons belong in the tax refund estimator once withholding and payments are known.

Sources and methodology

Exclusion percentage and caps are user-entered per IRC Section 1202 complexity. Brackets from Rev. Proc. 2025-32 apply to non-excluded gain. Educational planning only—not securities or legal advice.