Updated November 2026 · VG CPA PC advisors
The exclusion
For stock issued after July 4, 2025, shareholders can exclude 50% of gain after three years, 75% after four years and 100% after five years, up to the greater of $15 million (indexed) or ten times their basis per company. Stock issued earlier generally requires a five-year hold and has a $10 million cap.
The excluded gain is free of federal income tax and the net investment income tax. Some states, including California, do not follow the exclusion.
Company requirements
The company must be a domestic C corporation, its gross assets must not exceed $75 million when the stock is issued (raised from $50 million by the 2025 law for new issuances), and at least 80% of its assets must be used in an active business during most of the holding period.
Businesses in health, law, accounting, consulting, financial services, hospitality and certain other fields are excluded, which rules out many professional practices.
Shareholder requirements and planning
Stock must be acquired at original issuance for money, property or services, not bought from another shareholder. Converting an LLC to a C corporation can start QSBS eligibility for future growth.
Gifts and transfers at death carry over eligibility, and stacking the cap across family trusts can multiply the exclusion. If you sell early, section 1045 lets you roll gain into new QSBS within 60 days.