Qualified Small Business Stock
This guide has been updated for OBBBA
Qualified small business stock (QSBS) is a term that refers to stock shares, subject to special capital gains tax rules, in a qualified small business. Learn how the IRS treats QSBS taxes here.
Overview
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Definition
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C-corporation
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Does not apply to S-Corp stock
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Assets not more than $50M when stock issued
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Meets “active business requirement”
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Sec 1202 Treatment – Is not elective
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Depending on when stock issued:
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Holding requirements: 3, 4 or 5 Years
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Gain Exclusion: 50%, 75% or 100%
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Maximum tax: 28% on 50% & 75% non-excluded gain
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AMT: 7% of the excluded amount treated as a preference for stock issued before 9/27/2010: no AMT preference for stock issued after that date
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Investor Exclusion Limitations – cannot exceed:
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$10 million ($5M if MS) or 10 times basis
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Post 7/4/2025: $15 million ($7.5 if MS) or 10 times basis
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May apply to gain from pass-throughs that sold QSBS stock
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Rollover to another Sec 1202 – within 60 days
Related IRC and IRS Publications and Forms
o Pub 550 – Investment Income
o IRC Section 1202
o Form 8949 – Sales and Other Distributions of Capital Assets
California Differences - Qualified Small Business Stock
California does not allow an exclusion or deferral of gain from the sale of small business stock for sales after December 31, 2012.