QSBS Reimagined: How OBBBA Reshapes the §1202 Gain Exclusion
What Is QSBS and Why It Matters
For founders, early investors, and startup employees, Qualified Small Business Stock (QSBS) has long stood as one of the most powerful tax-saving provisions in the Internal Revenue Code. Under IRC §1202, qualifying stockholders can exclude up to 100% of capital gains from the sale of their stock, a benefit that has fueled innovation and entrepreneurship for decades.
OBBBA’s Key Changes to QSBS Rules
The One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, makes significant changes to QSBS rules. These changes will allow stockholders to shield more long-term capital gains from the sale of their company stock from federal income tax.
To qualify for the §1202 exclusion, stock must be issued by a U.S. based C corporation actively engaged in a qualified trade or business. At least 80% of corporate assets must be devoted to active operations, and the corporation’s gross assets immediately after the issuance of 1202 stock must be less than $75 million ($50 million prior to OBBBA).
The stockholder must acquire the shares directly from the corporation or underwriter in an original issue, in exchange for cash, property, or services. Alternatively, the stock can be received by gift or inheritance from the original owner. Importantly, QSBS cannot be purchased on the secondary market, ensuring the exclusion benefits the founders, early investors, and employees who helped launch and grow the company.
Higher Exclusion Limits: $15M and Beyond
Prior to OBBBA, the maximum gain exclusion per issuer was the greater of 10× basis or $10 million. With OBBBA, for stock acquired after July 4, 2025, this limit increases to $15 million or 10× basis, whichever is greater. Starting in 2026, the $15 million amount will be indexed for inflation each year.
New Tiered Holding Period Rules
Historically, a five-year holding period was required to claim the 100% exclusion. OBBBA introduces a tiered holding period for QSBS acquired after July 4, 2025:
| Holding Period (Years) | Exclusion from Gain (up to $15M) |
|---|---|
| Less than 3 | No exclusion |
| 3 | 50% exclusion |
| 4 | 75% exclusion |
| 5 or more | 100% exclusion |
Stacking Strategies to Multiply QSBS Benefits
If there is a possibility that gain from the sale of §1202 stock could exceed the $15 million exclusion, one potential planning strategy is “stacking.” This involves gifting stock to multiple family members or placing it in separate irrevocable trusts so that each recipient can claim their own per-issuer exclusion. Current law does not restrict these techniques, meaning stacking remains a viable, and potentially lucrative approach for maximizing QSBS benefits.
Why QSBS Planning Matters for Founders & Employees
If you are launching or growing a business, QSBS should be a central consideration in determining your entity structure, equity allocation, and long-term compensation strategy.
With OBBBA’s enhancements, including higher exclusion limits, shorter holding period options, and the preservation of stacking opportunities, QSBS planning may represent the single most important tax decision you make for yourself, your employees, your company, and your family.
The right planning today could mean the difference between paying millions in taxes or paying nothing at all in federal tax when you sell.
Next Steps for Maximizing Your QSBS Opportunities
The recent changes under OBBBA open up new opportunities - but only for those who plan ahead. If you’d like to see how a tailored QSBS strategy could fit into your business and personal financial plan, we invite you to request a meeting with our team. If we’re a good fit, we walk you through the rules, run the numbers, and design an approach that maximizes your potential tax savings.
About The Author
Todd Bartman, CPA is a tax advisor and Certified Public Accountant at Citrine Capital, a San Francisco-based wealth management and tax planning firm serving tech professionals, founders, and business owners. He leads the firm’s in-house tax function, specializing in equity compensation, multi-state taxation, and IRS audit support.
With extensive experience in individual and business tax strategy, Todd brings a proactive approach to managing complex tax situations. He is licensed in California and South Carolina and holds a Master of Accountancy in Taxation from the University of South Carolina.