QSBS Section 1202 Exclusion Calculator
Section 1202 of the Internal Revenue Code lets eligible investors exclude capital gain on qualified small business stock (QSBS) held more than five years. The exclusion is limited per issuer to the greater of 10 million US dollars (reduced by gain already excluded from that issuer) or 10 times your adjusted basis in the stock sold that year. This calculator takes your total gain, adjusted basis, prior excluded gain, the 10 million base cap, and the applicable exclusion percentage, computes the per-issuer cap and the eligible gain, then applies the percentage to show your excluded and taxable gain.
Section 1202 exclusion formula
Dollar limb = dollar cap - prior excluded gain
Basis limb = 10 * adjusted basis
Per-issuer cap = max(dollar limb, basis limb)
Eligible gain = min(total gain, per-issuer cap)
Excluded gain = eligible gain * (exclusion % / 100)
Taxable gain = total gain - excluded gain
The exclusion percentage depends on the acquisition date. Gain above the per-issuer cap, and the non-excluded portion of eligible gain, remains taxable and may carry other tax effects.
US QSBS context
- QSBS must generally be C corporation stock acquired at original issue from a qualified small business.
- The stock must be held more than five years to claim the Section 1202 exclusion.
- The per-issuer cap is the greater of the dollar cap (reduced by prior exclusions) or 10 times basis.
- The exclusion percentage has been 50, 75, or 100 percent depending on the acquisition window.
- Section 1045 lets investors roll over QSBS gain into new QSBS before the five-year mark in some cases.
QSBS Section 1202: frequently asked questions
What does Section 1202 exclude?
Section 1202 lets eligible noncorporate taxpayers exclude gain on the sale of qualified small business stock held more than five years. The exclusion is capped per issuer at the greater of 10 million US dollars (reduced by prior excluded gain from that issuer) or 10 times the taxpayer's adjusted basis in the stock disposed of that year.
How does the 10 times basis cap work?
One limb of the per-issuer cap is 10 times your aggregate adjusted basis in the QSBS of that issuer sold during the year. The other limb is 10 million US dollars. You use the greater of the two, so a large basis can lift the cap well above 10 million.
What exclusion percentage applies?
The exclusion percentage depends on when the stock was acquired: historically 50 percent, 75 percent, or 100 percent of eligible gain. This calculator lets you set the percentage so you can match the rule for your acquisition date. Confirm the rate with the IRS.
Is there a holding period requirement?
Yes. The stock generally must be held more than five years to qualify for the Section 1202 exclusion. Stock held for a shorter period does not qualify, though Section 1045 rollovers may help in some cases.
Is this the same as my actual tax outcome?
No. This estimates the gain exclusion mechanics only. Eligibility depends on the company being a qualified small business, the stock being acquired at original issue, active business requirements, and other conditions. Consult the IRS rules and a tax professional.
Official sources
- Legal Information Institute (Cornell Law): 26 U.S. Code Section 1202.
- Internal Revenue Service: IRS home (qualified small business stock).
Reviewed by the CalculatorHub team, edited by James Graham, 17 June 2026. See our methodology.