Quick answer
How much QSBS gain can a founder exclude in 2026?
For QSBS issued after July 4, 2025, Section 1202 excludes 50% of the gain after 3 years, 75% after 4 years and 100% after 5 years, up to the greater of $15 million per issuer or 10 times your basis. Stock issued earlier keeps the old rules: 100% after 5 years, capped at the greater of $10 million or 10 times basis.
Key takeaways
- 01New tiers for post-July 4, 2025 stock: 50% / 75% / 100% at years 3, 4 and 5.
- 02The cap is the greater of $15M per issuer or 10× basis for new stock.
- 03The issuer's gross assets must be $75M or less when the stock is issued.
- 04Non-excluded gain is taxed at 28%, and states such as California do not follow QSBS.
| Eligible issuer | Domestic C corporation, active business |
|---|---|
| Gross assets test | $75M (stock issued after July 4, 2025) |
| Cap (new stock) | Greater of $15M or 10× basis |
| Cap (older stock) | Greater of $10M or 10× basis |
| Rollover | §1045: reinvest within 60 days |
| California | No QSBS exclusion |
The Short Answer
How much QSBS gain can a founder exclude in 2026?
For QSBS issued after July 4, 2025, Section 1202 excludes 50% of the gain after 3 years, 75% after 4 years and 100% after 5 years, up to the greater of $15M per issuer or 10× your basis. Stock issued earlier keeps the old rules: 100% exclusion after 5 years, capped at the greater of $10M or 10× basis.
QSBS is the most valuable tax break most founders will ever see, and it is easy to lose through a technical failure. This guide is part of our Executive Equity & Insider Selling guide and pairs with diversification for founders and executives.
| Rule | Issued on/before July 4, 2025 | Issued after July 4, 2025 |
|---|---|---|
| Holding period | More than 5 years | 3 years (50%), 4 years (75%), 5 years (100%) |
| Per-issuer cap | Greater of $10M or 10× basis | Greater of $15M or 10× basis (indexed from 2027) |
| Gross assets test | $50M | $75M (indexed from 2027) |
| Exclusion % | 100% (acquired after Sept 27, 2010) | 50% / 75% / 100% |
| Non-excluded gain | Usually none | Taxed at 28% plus 3.8% NIIT |
Eligibility
Does your stock qualify?
Issued by a domestic C corporation (not an LLC taxed as a partnership or an S corp)
Acquired at original issuance for money, property or services, not bought from another shareholder
Company's aggregate gross assets were at or below the threshold ($50M or $75M) at all times before and immediately after issuance
At least 80% of assets used in an active qualified trade or business during substantially all of your holding period
Not an excluded business: professional services such as health, law, consulting, financial services, banking, hospitality and others
Held for the required period (3, 4 or 5 years)
The C-corp requirement trips up converted startups: If you started as an LLC and converted to a C corp, the holding period and basis generally start at conversion, and basis is the fair value contributed at that time. Gain built up before conversion is not eligible. Get advice before converting or before a redemption, which can also taint issuance.
Your Numbers
What is your QSBS exclusion worth?
Calculator
QSBS federal tax saved
Enter your expected gain, your exclusion percentage (50, 75 or 100) and your cap. The calculator compares QSBS treatment with a regular 23.8% long-term rate (20% plus 3.8% NIIT).
Gain excluded
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Federal tax saved vs 23.8%
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Illustrative only; not tax advice. Non-excluded QSBS gain is taxed at 28% plus 3.8% NIIT, so the calculation subtracts the extra 8 points on that slice. Ignores AMT, state tax and gain above the cap (taxed at normal rates).
Chart
Federal tax saved on a $10M gain, post-July 2025 stock
The Cap
How does the $15M or 10× basis cap work?
The cap is per taxpayer, per issuer, and it is the greater of a dollar amount or 10 times your aggregate adjusted basis in the stock sold that year. For most founders with near-zero basis, the dollar cap controls: $10M for older stock, $15M for stock issued after July 4, 2025. The $15M figure and the $75M asset test are indexed for inflation for tax years beginning after 2026. The dollar cap is a lifetime amount per issuer, reduced by gain you excluded in prior years.
Chart
Maximum federal tax saved at the dollar cap
The 10× basis prong matters for investors who paid real money for stock. An angel who invested $3M can exclude up to $30M of gain from that issuer.
Stacking
How do families multiply the cap?
Because the cap applies per taxpayer, founders often give QSBS to family members or to non-grantor trusts before a sale. A gift keeps the stock's QSBS status and carries over your holding period, and each recipient can have its own cap. Gifts to a spouse generally do not create a separate cap, and grantor trusts are treated as you.
Do
- Make gifts well before a sale is negotiated
- Use properly drafted non-grantor trusts with independent purpose
- Document valuations for gift tax returns
- Coordinate with estate planning for concentrated stock
Don't
- Rely on multiple trusts for the same beneficiary without advice; anti-abuse rules may apply
- Gift after a signed letter of intent
- Assume your state follows the federal result
Where Embark fits
QSBS covers some gain. What about the rest?
Enter a ticker and see what appreciated stock could target in income without a sale.
- Covers what QSBS can't: gain above the cap, public stock, non-qualifying shares
- In-kind contribution under §721 means $0 tax at contribution
- Targets 10%+ annual income while you keep the upside
Run the numbers
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§1045
What if you need to sell before the holding period?
Section 1045 lets you defer gain on QSBS held more than six months if you reinvest the proceeds in other QSBS within 60 days. Your holding period carries over to the new stock, so a serial founder or angel can keep the clock running. The replacement stock must meet the active-business test for its first six months.
Selling before the holding period without a rollover means ordinary capital gains treatment. If the stock is now public and the clock is short, compare the full cost of selling with holding to the next tier.
State Tax
Do states follow QSBS?
Most states with an income tax conform to Section 1202, but not all. California does not allow the exclusion, so a California resident pays up to 13.3% state tax on the full gain. On a $15M gain that is up to about $2M. Pennsylvania has also historically not conformed, and some states, including New Jersey only recently, have changed their rules. Check your state's current law at the time of sale, and the rules for trusts in your state.
Moving states is not a simple fix: States can tax gain they consider sourced to them, and a move shortly before a sale draws scrutiny. Residency planning needs to happen early and be real.
When QSBS Is Not Enough
What about gain QSBS does not cover?
QSBS does not help with gain above your cap, stock bought on the secondary market, shares in an S corp or LLC, or public company stock you received after your company was acquired in a taxable deal. Many founders end up with a large, concentrated position anyway.
Embark contributes concentrated stock into an SPV in exchange for partnership interests, an in-kind contribution that is generally a nonrecognition event under IRC §721, so $0 tax is due at contribution. The SPV targets 10%+ annual income while you keep exposure to the upside. Accredited investors only; targets are not guarantees. It is not a substitute for QSBS: if a sale would be fully excluded, selling may be the better choice. Embark is most relevant for appreciated shares where selling would trigger a large tax bill. See also exchange funds vs Embark.
FAQ
QSBS questions
Did the OBBBA change QSBS for my existing stock?
No. The new tiers, $15M cap and $75M asset test apply to stock issued after July 4, 2025. Earlier stock keeps the 5-year, $10M rules.
How is non-excluded QSBS gain taxed?
Gain that is not excluded under the 50% or 75% tiers is taxed at a 28% rate, plus the 3.8% net investment income tax where it applies.
Is the $15M cap indexed for inflation?
Yes, for tax years beginning after 2026. The $75M gross assets threshold is also indexed starting then.
Can I get QSBS on stock in an LLC?
Not while it is an LLC taxed as a partnership. Only C corporation stock qualifies, and the clock starts at conversion.
Does California allow QSBS?
No. California taxes the full gain at ordinary state rates even when the federal exclusion applies.
Does QSBS survive an IPO?
Yes. Qualification is tested at issuance and during your holding period, so stock that qualified keeps its status after the company goes public.
What is a §1045 rollover?
If you have held QSBS more than six months, you can defer the gain by reinvesting the proceeds in new QSBS within 60 days.
Does gifting QSBS keep the exclusion?
Yes. Gifts carry over the donor's holding period and QSBS status, which is how families stack separate caps.
Sources
Primary sources
Sources
Cite this article
Embark Funds Research. “QSBS & Section 1202 for Founders The 2026 Rules After the OBBBA.” Embark Funds, updated October 15, 2026. https://www.embarkfunds.com/insights/qsbs-section-1202-founders-2026
Not tax, legal or securities advice: This article is educational. Charitable, securities and tax rules depend on your facts and your company's policies. Work with a CPA, an estate attorney and, for insiders, securities counsel before acting. Embark income figures are targets, not guarantees, and contributed shares have a 3-year lock-up.
Executive Equity & Insider Selling Series
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Not All Founder Stock Qualifies for QSBS.
Income From Appreciated Stock QSBS Doesn't Cover
Gain above your cap, stock that failed a test, or shares of a company that is now public: Embark's SPV takes an in-kind contribution with $0 tax at contribution and targets 10%+ annual income. Accredited investors only; targets are not guarantees.