THE BARATELLI INSTITUTE · Mentoring at Scale
QUALIFIED SMALL BUSINESS STOCK

$10 million federal exclusion.
Or 10× your basis.
Whichever is greater.

Section 1202 lets a founder or early investor exclude up to $10M (post-OBBBA: $15M for stock issued after July 4, 2025) of federal capital-gains tax — or 10 times their basis — on qualifying small-business stock held five years. Most founders miss the rules. This tool walks the entire test.

$10M
PER-ISSUER CAP (PRE-OBBBA)
$15M
PER-ISSUER CAP (POST-OBBBA)
5 YR
HOLDING PERIOD FOR 100%
$75M
QSB ASSET TEST (POST-OBBBA)
YOUR §1202 ANALYSIS
1
The stock
2
Issuance test
3
Holding period
4
The gain
5
Your exclusion
STAGE 1 OF 5

Tell me about the stock

Six inputs. Each one drives a different §1202 sub-test.

Original issuance date — when the corporation issued the shares directly to you. Not the date you bought from a prior holder.
When you expect to sell. Drives the holding-period exclusion percentage.
Cash paid + value of any property contributed at issuance. Founders with sweat equity often have a basis of $0 to a few hundred dollars.
$
What you expect to receive for the stock at sale. Pre-tax, before transaction costs.
$
STAGE 2 OF 5

Was the stock QSBS at issuance?

A "yes" on every line below is required. One "no" and §1202 is unavailable for this stock — full stop.

S-corporations, LLCs, partnerships, and foreign corporations do not qualify. The company must have been a C-corp at the time of issuance and through the holding period.
$50M for stock issued before July 4, 2025; $75M post-OBBBA. Aggregate gross assets means money + tax basis of all other property held by the corp. Tested at and immediately after issuance — once you cross the threshold, all later issuances fail, but already-issued stock keeps its QSBS status.
Buying stock from another shareholder on the secondary market does NOT qualify, except in narrow exceptions (gift, inheritance, §351 transfer, partnership distribution, §1045 rollover).
~80% of corporate assets must be used in an active business other than: financial services, professional services (health/law/accounting/consulting/engineering/etc.), banking, insurance, leasing, farming, mineral extraction, or restaurant/hotel businesses. Tech, manufacturing, retail, software-as-a-service, and most consumer/industrial businesses qualify.
Redemptions from the issuing shareholder within 2 years before/after issuance ($10K + 5% threshold) and from any shareholder within 1 year ($10K + 2% threshold) can disqualify QSBS treatment. Most early-stage companies are clean here, but a recapitalization or buyout of an early investor can blow it up.
STAGE 3 OF 5

How long have you held it?

Holding period drives the exclusion percentage. The OBBBA (signed July 2025) created a tiered structure for new issuances; old rules still apply to legacy QSBS.

The §1045 rollover bridge. If you have not held the original stock long enough for the percentage you want, §1045 lets you sell QSBS held more than six months and roll the proceeds into replacement QSBS within 60 days, tacking the holding period. This is how founders convert pre-five-year exits into eligible §1202 stock — by parking proceeds in another QSB.
OBBBA tiered exclusion (stock issued after July 4, 2025). 3-year hold = 50% exclusion. 4-year hold = 75% exclusion. 5-year hold = 100% exclusion. Per-issuer cap raised to $15M. Inflation indexed going forward.
STAGE 4 OF 5

Per-issuer cap math

The §1202 exclusion is the greater of two limits per issuer: (a) a fixed dollar cap or (b) 10× your basis. Most founders use the dollar cap; high-basis investors sometimes use the 10× rule.

The cap is per-issuer cumulative. If you've already excluded $4M from this company, only $6M of headroom remains under the $10M cap (or $11M of $15M post-OBBBA).
$
Stacking the exclusion. The per-issuer cap is per-taxpayer. A married couple gets one cap each if the basis allocation is correct. Gifting stock to a non-grantor trust (in some states), to children, or to a SLAT can multiply the cap across multiple taxpayer entities. This is one of the highest-leverage planning moves in the §1202 playbook. Do not do it without §1202-experienced counsel.
STAGE 5 OF 5 · YOUR §1202 RESULT

Your federal tax outcome

Planning recommendations

PAIRS WITH
The PE Guide and CFO Guide cover §1202 structuring in depth.
The PE Guide chapters on transaction structuring and tax-aware exits cover the §1202 stacking strategies, the §1045 rollover playbook, and the qualified-asset test in operational detail. The CFO Guide has the corporate-side checklist for keeping a company QSBS-eligible from formation through sale. Subscribe to the library →
FROM THE PE & CFO GUIDES

The full §1202 chapter — by email.

The complete §1202 walk-through: stacking strategies, §1045 rollover mechanics, formation-stage decisions, and the audit-defense file your CPA needs at sale. From the PE Guide and CFO Guide.

Section 1202 is a complex statute with edge cases at every joint. This calculator implements the statutory mainline — original issuance, $50M/$75M aggregate-asset test, qualified business test, 5-year hold, per-issuer cap, exclusion percentages by issuance date — but does not model every fact pattern (multi-class capital structures, redemption-trap timing, OBBBA transition rules, §83(b)/restricted-stock interaction, AMT preference for pre-2010 stock, foreign-shareholder issues, in-house valuations of contributed property, basis adjustments from §83(b) elections). State conformity flags are general guidance; verify with a state-tax professional. This is not tax advice. Use this tool as the conceptual baseline and engage §1202-experienced counsel before relying on the result.
WANT THE METHODOLOGY BEHIND THIS TOOL?
This calculator is one chapter of The Liquidity Event Playbook.
The tool gives you the answer. The guide gives you the argument — the case law, the worked examples, the negotiation playbook, the cross-check tables, the exception cases. Read the chapter and you can defend your number to a board, a buyer, an examiner, or a counterparty.
The methodology behind this calculator is in §1202 QSBS qualification & stacking of the reference guide.
See the Guide → Browse all 22 guides
PROFESSIONAL DISCLAIMER · PLEASE READ

Educational and informational purposes only. This calculator and any output it produces are intended solely for general educational and decision-support purposes. They do not constitute investment, tax, legal, accounting, appraisal, lending, insurance, or any other professional advice, and they do not create a fiduciary, attorney-client, accountant-client, or advisor-client relationship of any kind.

Estimates based on your inputs. All results are estimates derived from the data and assumptions you provide. Tax law, accounting standards, regulations, market conditions, and the specific facts of your situation can materially change the answer. The Baratelli Institute, its affiliates, and any co-branding professional make no warranty of accuracy, completeness, currency, or fitness for any particular purpose, and disclaim all liability for decisions made in reliance on the output.

Consult your own qualified professionals. Before acting on anything calculated here, consult your own attorney, CPA, financial advisor, appraiser, lender, or other qualified professional licensed in your jurisdiction who has reviewed your specific facts and applicable current law. The Baratelli Institute is a publisher of practitioner reference material. It is not a registered investment adviser, broker-dealer, law firm, accounting firm, appraisal firm, or lender.

Co-branded versions: If a professional advisor's name and contact information appear on this tool, that advisor has elected to make the tool available to clients as a courtesy. Inclusion of an advisor's name does not constitute the advisor's endorsement of any specific result, nor does it transfer professional responsibility for the underlying methodology to that advisor. The disclaimer above applies regardless of co-branding.