Federal Tax Exemption • IRC § 1202

IRC § 1202 QSBS Tax Exemption Checker

Section 1202 of the Internal Revenue Code allows founders, early employees, and angel investors in qualifying Delaware C-Corporations to exclude up to 100% of federal capital gains taxes (up to $15M or 10x basis for stock acquired on/after July 5, 2025; $10M pre-OBBBA) upon exit. Stock acquired on/after July 5, 2025 unlocks tiered relief: 50% at 3 years, 75% at 4 years, 100% at 5 years.

100% Federal Capital Gains Exclusion (Institutional QSBS)

Estimated Federal Tax Savings Upon Exit

$1,190,000.00 USD(20% LTCG + 3.8% NIIT Eliminated)

Congratulations! Your stock meets all IRC § 1202 requirements. You can legally exclude 100% of your federal capital gains up to $10M (or 10x basis), and your gain is 100% exempt from the 3.8% Net Investment Income Tax (NIIT) and Alternative Minimum Tax (AMT).

Holding Period (post-OBBBA tiers: 3yr 50% / 4yr 75% / 5yr 100%):5.2 / 5.0 Years

Pre-OBBBA regime (issued before July 5, 2025): $50M assets test, $10M cap, 5-year cliff.

Check Franchise Tax & Gross Assets

Statutory QSBS Eligibility Questionnaire

Verify the 6 statutory conditions required by IRC § 1202 to confirm your stock qualifies.

1. Corporate Entity Structure

IRC § 1202(c)(1) strictly requires a domestic US C-Corporation.

2. Gross Assets Ceiling at Issuance ($50M pre-OBBBA / $75M post-OBBBA)

IRC § 1202(d) as amended by OBBBA: cash + property tax basis must not have exceeded $50M (issued before July 5, 2025) or $75M (issued on/after July 5, 2025) immediately after issuance.

3. Original Issuance Test

IRC § 1202(c)(1)(B): Secondary market share purchases do NOT qualify.

4. Qualified Trade or BusinessIRC § 1202(e)(3) statutorily excludes professional services, finance, and hospitality.

5. Holding Period: 5.2 Years

0 Yrs3 Yrs (50% post-OBBBA)5 Yrs (100%)10 Yrs

6. Estimated Exit Capital Gain ($)Statutory cap is greater of $15,000,000 (stock acquired on/after July 5, 2025; $10M before) or 10x basis per taxpayer per issuer.

Recommended QSBS Substantiation Steps

Document balance sheet gross assets at issuance in your corporate minute book to prove the applicable ceiling ($50M pre-July 5, 2025; $75M on/after).

Obtain a formal QSBS Officer Attestation Letter signed by the corporate Secretary/CFO.

Maintain continuous C-Corporation status (do not elect S-Corp status, which voids QSBS).

Confirm all SAFE and convertible note conversions are clearly timestamped in your cap table.