Does the $15 million cap apply to old stock?

No. The $15 million cap and graduated exclusions apply only to stock issued after July 4, 2025. Earlier stock keeps the $10 million cap and the five-year hold.

Is QSBS gain hit by the 3.8% NIIT?

No. Gain excluded under Section 1202 is not subject to the Net Investment Income Tax, including the partial exclusions at three and four years.

Do states follow the federal QSBS exclusion?

Not always. California and some others tax QSBS gain even when the IRS does not. Check your state's treatment before relying on a state-level exemption.

The QSBS Exclusion in 2026

Qualified Small Business Stock (QSBS), under IRC Section 1202, is one of the most valuable breaks in the code: it can let founders, early employees, and seed investors exclude a large share of gain when they sell C corporation stock. The 2025 law made it noticeably more generous for stock issued after July 4, 2025.

Who qualifies

The stock must be in a domestic C corporation (not an S corp, partnership, or LLC taxed as one)
It must be original-issue stock you got for money, property, or services
At issuance the company's gross assets must be under the threshold (see below)
At least 80% of assets must be in an active qualified trade or business

Excluded industries include law, accounting, health services, consulting, finance, and certain others.

The OBBBA changes (stock issued after July 4, 2025)

Per-issuer exclusion cap raised to the greater of $15,000,000 or 10x basis (up from $10 million), inflation-indexed from 2027
Gross-asset threshold raised to $75 million (up from $50 million)
Graduated holding periods: 50% excluded at 3 years, 75% at 4 years, 100% at 5 years
The excluded gain is not subject to the 3.8% NIIT

Stock issued on or before July 4, 2025 keeps the old rules: five-year hold for 100% and a $10 million cap.

A trap on partial exclusions

For post-OBBBA stock sold at three or four years, the unexcluded portion of gain is taxed at 28%, not the normal 15% or 20% long-term rate. Model the effective rate before you sell early.

Numbers: a founder's exit

A founder holds post-OBBBA QSBS for five years and sells for a $15,000,000 gain:

100% exclusion applies
Federal capital gains tax on that gain: $0, and no NIIT
If they had sold at three years instead, only 50% is excluded; the other $7.5M is taxed at 28%, costing about $2.1M

The cap is per taxpayer, per issuer. Spouses each carry their own cap, which can double the effective exclusion on a single exit.

Disclaimer: This article is general educational information, not tax, legal, or investment advice. Dollar amounts come from the 2026 sources listed at the end of this article and may change. Before you act, talk to a licensed CPA, EA, or tax attorney about your own situation.