Am I QSBS eligible?
Section 1202 can take up to $15 million of gain on startup shares out of federal income tax. It is the largest tax break most founders and angels will ever see, and it is lost quietly: on the wrong entity type, a buyback, a missed 83(b) election or a business the law excludes. Answer a short questionnaire and we'll show where your shares stand on the rules as amended in July 2025, with the statute behind each point.
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The company
Only shares in a US C corporation can be QSBS. A typical Delaware startup is a C corporation. An LLC or an S corporation is not, and neither is a UK or other foreign company.
The detailed rule
§1202(c)(1) and (d)(1): the issuer must be a domestic C corporation when the stock is issued and during substantially all of the holder's holding period. An LLC taxed as a partnership that converts to a C corporation can issue QSBS from the conversion; the holding period starts then, and the company's assets are counted at fair value at conversion for the gross-assets test.
Roughly the company's cash plus everything else it owns, counting the money the round brought in. It must not have gone over the limit at any point up to and including just after your shares were issued.
The detailed rule
§1202(d): aggregate gross assets (cash plus the adjusted tax basis of other property; contributed property at fair value when contributed) must not exceed the limit at any time before, or immediately after, the issuance. $75m for stock issued after 4 July 2025 (indexed from 2027); $50m before. Exceeding it LATER does not disqualify stock already issued.
The law shuts out some kinds of business entirely, mostly professional services and finance. Most software, hardware, biotech and consumer-product companies are fine. Check the list below if you're unsure.
The detailed rule
§1202(e)(3) defines a qualified trade or business by exclusion. The 'reputation or skill' clause is read narrowly in practice, but a services business built on its people (a consultancy, an agency, a clinic) is at risk. A health-tech company that sells software is generally different from one that provides health services.
See the excluded fields
- Services in health, law, engineering, architecture, accounting, actuarial science, performing arts, consulting, athletics, financial services or brokerage
- Any business whose main asset is the reputation or skill of its employees or owners
- Banking, insurance, financing, leasing, investing, or similar businesses
- Farming, including raising or harvesting trees
- Producing or extracting oil, gas or other minerals for which a depletion deduction is allowed
- Running a hotel, motel, restaurant or similar business
The company has to be an operating business, not a vehicle holding cash or investments. Money raised and waiting to be spent on the business normally counts as used in it.
The detailed rule
§1202(e)(1), (e)(6)–(7): at least 80% of assets by value must be used in the active conduct of qualified trades during substantially all of the holding period. Working capital expected to be spent within two years counts as active; after two years in existence, no more than 50% of assets may qualify only as working capital. Real estate not used in the business over 10% of assets, or portfolio stock over 10% of net assets, fails the test.
Your shares
The rules changed for shares issued after 4 July 2025: a higher size limit, a higher cap, and part of the gain excluded after three or four years. Older shares keep the older rules.
The detailed rule
The One Big Beautiful Bill Act, signed 4 July 2025, amended §1202(a), (b) and (d) for stock acquired after that date. For stock acquired 28 Sep 2010 – 4 July 2025: 100% exclusion after five years, $10m cap, $50m gross assets. Earlier stock: 50% (Aug 1993 – Feb 2009) or 75% (Feb 2009 – Sep 2010) exclusions, not modelled here.
QSBS has to come straight from the company — for cash, for property, or as pay for work. Shares bought from another shareholder are not QSBS, even in a qualifying company.
The detailed rule
§1202(c)(1)(B): acquired at original issue, directly or through an underwriter, in exchange for money or property other than stock, or as compensation for services. Shares received by gift, at death, or in a distribution from a partnership that held QSBS keep the transferor's status (§1202(h)). A SAFE or convertible note is not stock until it converts; the holding period generally starts at conversion.
The exclusion is for people, not companies. Shares held through a C corporation do not get it. Angel funds and LLCs taxed as partnerships pass it through to their members.
The detailed rule
§1202(a)(1): the exclusion is available to taxpayers other than corporations. Pass-through holders (partnerships, S corporations, regulated investment companies) pass it to partners who held their interest when the QSBS was acquired, limited to their share at that time (§1202(g)).
Founder shares usually vest. If you filed an 83(b) election within 30 days, your QSBS clock started when you got the shares. If you didn't, it starts separately as each slice vests, which can push your five years back by years.
The detailed rule
Under §83, restricted stock is not treated as transferred until it vests unless a §83(b) election is filed within 30 days of the transfer. For §1202 the acquisition date, and so the holding period, follows the same rule. Stock acquired by exercising an option is acquired at exercise; the option period does not count.
A buyback from you or a family member, or a large buyback from anyone, close to when your shares were issued can disqualify them. Answer "Yes" if there was one, "No" if there wasn't.
The detailed rule
§1202(c)(3) and Treas. Reg. §1.1202-2: stock is not QSBS if, within the four years from two years before to two years after the issue, the company redeemed more than a de minimis amount from the taxpayer or a related person; or if, within the two years from one year before to one year after, it redeemed more than 5% of its stock by value (subject to de minimis thresholds).
This sets how much of the gain is excluded. For shares issued after 4 July 2025: half after three years, three quarters after four, all of it after five. For older shares: all of it after five, nothing before.
The detailed rule
§1202(a) as amended. The taxable part of a 50% or 75% exclusion is taxed at 28% (§1(h)(4)). Selling before five years? A §1045 rollover can defer the gain if the proceeds are reinvested in other QSBS within 60 days and the stock was held over six months.
Optional. The cap on the excluded gain is the larger of a fixed amount or ten times what you paid, so a large investment can carry a larger cap.
The detailed rule
§1202(b)(1): the per-issuer limit is the greater of $15m ($10m for stock issued before 5 July 2025), reduced by gain already excluded on that company's stock, or ten times the aggregate adjusted basis of the QSBS disposed of in the year. For stock received for services or property, basis is its fair value at issue.
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A plain-English eligibility indicator, not tax advice. Confirm with a CPA or tax attorney before relying on it. Rules as of 6 October 2026.