QSBS Calculator — Section 1202 Tax Savings Estimator (2026)

IRC § 1202 — the qualified small business stock exclusion — can eliminate federal income tax on millions in startup gains. After the One Big Beautiful Bill Act (OBBBA, July 2025), the exclusion reaches $15 million per issuer with a new tiered schedule for post-July 4, 2025 stock. Enter your gain, holding period, and state to see your estimated tax savings. Not tax advice — use as a planning starting point only.

What counts as "eligible QSBS gain": Your gain from selling qualified small business stock equals proceeds minus your tax basis. For ISO early-exercise shares, basis is typically the strike price. For NQSO-derived shares, basis is the FMV at exercise (since the spread was already reported as W-2 income). The gain must arise from stock originally issued directly by the company — secondary-market purchases don't qualify.

Stock issue date

Eligible QSBS gain ($)

Holding period (years since exercise)

Federal long-term capital gains rate

NIIT exposure?

State

State rate (%)

How QSBS works — key rules

Pre-OBBBA vs. post-OBBBA stock

The One Big Beautiful Bill Act (OBBBA, effective July 4, 2025) created two separate rule sets based on when shares were issued — meaning when you actually exercised options and received stock, not when options were granted.

Issued on or before July 4, 2025: Old rules apply. No exclusion before 5 years. 100% exclusion at 5 years, up to $10 million per issuer.
Issued after July 4, 2025: New tiered rules. 50% exclusion at 3 years, 75% at 4 years, 100% at 5 years, up to $15 million per issuer.¹

The 28% rate trap at 3 and 4 years

The partial exclusions at 3 and 4 years come with an important caveat: the non-excluded portion of § 1202 gain is taxed at 28% under IRC § 1(h)(4) — not at the standard 15% or 20% LTCG rate. This means a $2M gain at year 3 with 50% exclusion results in $1M excluded (tax-free) and $1M taxed at 28% = $280K federal tax. The same $2M gain at year 5 with 100% exclusion = $0 federal tax. That $280K difference is the cost of selling 2 years early.

The per-issuer cap

The exclusion is capped at the greater of:

$15 million (post-OBBBA) or $10 million (pre-OBBBA) per issuer, or
10× your adjusted tax basis in the shares — which can allow much larger exclusions for founders with significant cost basis.

For early-exercise employees with near-zero strike prices, the $15M cap is typically the binding constraint. Each taxpayer gets the cap separately — spouses filing jointly can each claim $15M from the same issuer for up to $30M combined.

NIIT and QSBS

The 3.8% Net Investment Income Tax (NIIT) applies to investment income above $200K (single) or $250K (MFJ). The excluded portion of QSBS gain is excluded from gross income and therefore not subject to NIIT. Only the included portion (the non-excluded share at 3yr/4yr tiers) is subject to NIIT. At a 100% exclusion (5-year hold), NIIT = $0 on QSBS gains.

State conformity

Most states follow the federal §1202 exclusion, but three major tech-employee states do not:

California — CA does not conform to §1202. The full gain is taxable as CA ordinary income at rates up to 13.3%, regardless of how long you held and regardless of the federal exclusion. QSBS still saves federal taxes, but CA takes its share.
Oregon — SB 1507 (signed April 2026, retroactive to Jan 1, 2026) decoupled Oregon from the §1202 exclusion. Oregon taxes the federally excluded QSBS gain at rates up to 9.9%.
Pennsylvania — PA does not conform. The full gain is taxable at PA's 3.07% flat rate. Philadelphia residents face additional city wage tax.
New Jersey — NJ now conforms to §1202 as of Jan 1, 2026 (Bill A4455/S4503, signed June 30, 2025).
Washington — No state income tax. But WA's capital gains excise tax (7% on gains over $278K; 9.9% above $1M) may apply to QSBS gains since it is a separate state excise, not an income tax exclusion. CA-to-WA relocators should still review the federal exclusion benefit vs. the WA CG excise.

Early exercise + 83(b) = the best QSBS play. The sooner you exercise options and file an 83(b) election, the sooner the QSBS holding clock starts and the lower your basis — maximizing the per-share gain eligible for exclusion. Founders and early employees who exercise at a near-zero 409A and file an 83(b) often qualify for the largest QSBS exclusions.

Who qualifies for QSBS

Both the company and your shares must meet several requirements. Key checkpoints:

C-corporation only — no LLCs, S-corps, or partnerships.
Gross assets ≤ $75M at issuance (post-OBBBA) or $50M (pre-OBBBA). The company must not have exceeded the threshold at the moment shares were issued.
Active qualified trade or business — technology, manufacturing, and software qualify. Excluded sectors include: health, law, accounting, financial services, consulting, engineering, architecture, and performing arts. Biotech qualifies under the § 1202(e)(3)(B) carve-out.
Original issuance — shares purchased on secondary markets (Forge, CartaX, EquityZen) do not qualify, even if they originated as QSBS.
Individual or pass-through taxpayer — corporations cannot claim the exclusion.

For a complete eligibility walkthrough, see QSBS and Stock Options: The Section 1202 Guide.

Talk to a stock-option specialist about QSBS planning

QSBS planning is driven by irreversible decisions — early exercise timing, 83(b) deadlines, and holding period choices that can shift your tax bill by millions. A fee-only advisor who has modeled these situations dozens of times spots traps and opportunities a generalist will miss.

One Big Beautiful Bill Act (OBBBA), signed July 4, 2025 — IRC § 1202 amendments expanding exclusion to $15M cap and tiered 50/75/100% at 3/4/5 years for post-July 4, 2025 stock. congress.gov
IRC § 1(h)(4) — Collectibles and § 1202 included gain taxed at no more than 28%. law.cornell.edu/uscode/text/26/1
IRS Rev. Proc. 2025-32 — 2026 LTCG thresholds ($49,450/$545,500 single, $98,900/$583,750 MFJ). irs.gov
IRC § 1202 — Qualified Small Business Stock exclusion, gross asset test, eligible corporation requirements. law.cornell.edu/uscode/text/26/1202
California FTB — CA does not conform to IRC § 1202. All QSBS gains taxable as CA ordinary income. ftb.ca.gov
Oregon SB 1507 (signed April 9, 2026) — Oregon decoupled from § 1202 QSBS exclusion, retroactive to Jan 1, 2026. oregonlegislature.gov

Tax values verified for 2026. Last reviewed July 2026.