QSBS Section 1202: Exclusion and Cap by Acquisition Date (2026)

The thresholds by acquisition date

The statute does not give one set of numbers. It gives four, selected by the date you acquired the stock. The acquisition dates below come from 26 U.S.C. 1202(a) and the enactment dates in its notes (February 17, 2009, September 27, 2010, July 4, 2025); where a row says “acquired on or after July 5, 2025,” that is our rewording of “acquired after the applicable date.”

Source: 26 U.S.C. 1202(a), (b), (d) (Cornell LII text, read October 19, 2026); Instructions for Schedule D (2025) for the $50 million and $75 million split; Instructions for Form 6251 (2025) and 26 U.S.C. 57(a)(7) for the AMT column. The first row starts at August 11, 1993 because 1202(c)(1) requires stock originally issued after the date of enactment of the Revenue Reconciliation Act of 1993 (August 10, 1993).

Three details in the table are not obvious from the headline numbers:

• The February 17, 2009 boundary is one day wide. The statute gives 75 percent to stock “acquired after” February 17, 2009, so stock acquired on that day is in the 50 percent row. The 2025 Schedule D instructions say the same (“on or before February 17, 2009” is 50 percent), while Publication 550 (2025) words it as 50 percent for stock “acquired before February 17, 2009” and 75 percent for stock “acquired between February 17, 2009, and September 27, 2010.” We follow the statute.
• Stock acquired between December 22, 2000 and February 17, 2009 in an empowerment zone business could reach 60 percent under 1202(a)(2), but only for gain attributable to periods through December 31, 2018 (1202(a)(2)(C)). It matters now only for old positions.
• The AMT column changed in 2025. Section 57(a)(7), as amended by Pub. L. 119-21 section 70431(a)(4)(A), treats 7 percent of the section 1202 exclusion as a preference item only for stock acquired on or before September 27, 2010. The 2025 Form 6251 instructions say the same for line 2h. Nothing in the text we saved puts an AMT preference on the 3-year and 4-year tiers of new stock (our reading).

What changed on July 4, 2025, line by line

Section 70431 of Pub. L. 119-21 rewrote three parts of section 1202. The effective-date sentences are what decide who gets what, so here they are in the enacted order.

Source: Pub. L. 119-21, section 70431, as published by the Government Publishing Office (govinfo.gov), and 26 U.S.C. 1202 (Cornell LII), read October 19, 2026.

Three consequences follow from the text, each marked as our reading:

1. Why July 2028. The new tier needs “at least 3 years” (1202(a)(1)(B)). Stock acquired on July 5, 2025, the first day in the new regime, reaches that on July 5, 2028, a Wednesday. The exact day count is a holding-period question under section 1223, which 1202(a)(6)(B) points to for stock whose acquisition date is not simply the purchase date. Anyone selling before then, or selling stock acquired on or before July 4, 2025, is under the 5-year rule.
2. The indexed number is not $15 million. Section 1202(b)(5)(A) raises the $15,000,000 “in the case of any taxable year beginning after 2026” by a cost-of-living adjustment with calendar year 2025 as the base, rounded to the nearest $10,000. The first new-regime sale is in 2028 at the earliest, so the dollar limit that will apply is the $15,000,000 grown by that index, a figure that cannot be computed from the sources we have. Our worked examples below use the unindexed number and say so.
3. The limit can fall to zero. Section 1202(b)(5)(B): if eligible gain on new stock of an issuer exceeds the applicable dollar limit in a year, then “the applicable dollar limit for such subsequent taxable year shall be zero.” Selling new stock of the same issuer in two pieces does not reset the limit.

A drafting oddity in the $75 million indexing clause

The public law adds an inflation clause for the asset ceiling “at the end” of section 1202(b), and that clause increases “the $75,000,000 amounts in paragraphs (1)(A) and (1)(B).” Subsection (b)(1)(A) and (B) are the dollar limit and the 10-times-basis test; the $75,000,000 figures are in subsection (d)(1)(A) and (B). On its face the indexing clause for the asset ceiling points at paragraphs that contain no $75,000,000 (our reading of the enacted text). Whether Treasury will treat it as a clerical slip is not something the documents we saved answer. Section 1202(k) gives the Secretary authority to prescribe regulations “to prevent the avoidance of the purposes of this section through split-ups, shell corporations, partnerships, or otherwise.” We found no notice, proposed regulation or revenue ruling on section 1202 among the IRS documents we read on October 19, 2026.

What the IRS forms say today

For a sale reported on a 2025 return, none of the new tiers can apply, so the 2025 IRS documents describe the old rules. They disagree with each other on the asset ceiling, which shows how unevenly the update has reached them.

Source: IRS Instructions for Form 8949 (2025), Instructions for Schedule D (Form 1040) (2025), Publication 550 (2025) and Instructions for Form 6251 (2025), read on irs.gov on October 19, 2026.

The reporting steps are the same for every regime. You report the sale on Form 8949 Part II as if no exclusion applied, enter Q in column (f) and the exclusion as a negative number in column (g). The Schedule D instructions send the excluded amount to the 28% Rate Gain Worksheet: the full exclusion if it is 50 percent of the gain, one-third of it if 75 percent, and nothing if 100 percent. That worksheet follows 26 U.S.C. 1(h)(7), which defines “section 1202 gain” as the gain that would be excluded but for the percentage limit, minus the gain actually excluded; that remainder is “28-percent rate gain” under 1(h)(4), and section 1(h)(1)(F) sets 28 percent as the rate ceiling. If a fund or the issuer reports a gain in box 2c of Form 1099-DIV or box 1c of Form 2439, the Schedule D instructions say part or all of it may be eligible for the exclusion.

Worked examples (our arithmetic)

All taxpayers are hypothetical, and every number is ours; the rules are the statute’s. None of this says what any real return would show.

Stock acquired before July 5, 2025: 100 percent, with the 10-times-basis test

The only difference between the two is basis. In Example 2 the 10-times-basis test in 1202(b)(1)(B) lifts the limit above $10,000,000, so a bigger investment can exclude more than the headline limit. In both, the stock was held more than 5 years and acquired between September 28, 2010 and July 4, 2025.

Stock acquired after July 4, 2025: the same sale at different holding periods

A taxpayer acquires QSBS at original issue in August 2025 for $2,000,000 and sells for $12,000,000 on or after the stated anniversary, gain $10,000,000. The limit is the greater of $15,000,000 (before indexing) or 10 x $2,000,000 = $20,000,000, so it is at least $20,000,000 and does not bind.

The ceiling column is 28 percent of the section 1202 gain, the most that section 1(h)(1)(F) allows that slice to be taxed at; the rate on a real return can be lower and depends on income. Waiting from year 3 to year 5 changes the excluded amount from $5,000,000 to $10,000,000 in this example, a difference of $5,000,000 (our arithmetic).

The limit shared across old and new stock of the same issuer

A taxpayer excluded $4,000,000 of eligible gain on old stock of a company in 2024. Later, new stock of the same company, bought for $1,000,000, is sold after 5 years with a gain of $20,000,000.

AMT on old stock

Stock acquired in 2005 (the 50 percent regime), sold with a gain of $1,000,000: the excluded gain is $500,000, and the Form 6251 line 2h adjustment is 7 percent of that, $35,000. Under the 100 percent regime (acquired September 28, 2010 or later) and the new tiers, the same line produces no adjustment (our reading of 57(a)(7) and the Form 6251 instructions).

Married filing separately

Section 1202(b)(3)(A) sets the dollar limit for old stock at $5,000,000 on a separate return, and for new stock at one-half of the $15,000,000 amount in effect, $7,500,000 before indexing (our arithmetic).

Why the alternative assets on this site do not qualify

Most readers of this site hold REITs, BDCs, interval funds, DSTs or private real estate. None can issue QSBS, and the reasons are in the text of 26 U.S.C. 1202, not in commentary.

The statute’s own words on real property are narrow and worth reading in full: the active business test fails for any period when more than 10 percent of a corporation’s assets are real property not used in an active business, and “the ownership of, dealing in, or renting of real property shall not be treated as the active conduct of a qualified trade or business.” Our pages on REIT return of capital and K-1 versus 1099-DIV cover how the income from those vehicles is taxed instead.

Two ownership routes deserve attention if you hold private company stock indirectly:

• Through a partnership or SPV. Section 1202(g)(2)(B) requires that you held the entity interest on the date the entity acquired the stock and at all times after. Buying into a fund after it bought the startup stock does not qualify for that stock (our reading). The Schedule D instructions give the same condition for “a partnership, S corporation, common trust fund, or mutual fund or other regulated investment company.” Our page on private equity secondaries is about buying such interests; the holding-period rule above is the section 1202 question it raises.
• By gift or at death. Under 1202(h)(1) the transferee is treated as having acquired the stock “in the same manner as the transferor,” which keeps the transferor’s acquisition date and regime (our reading).

If you sell before the holding period

Publication 550 (2025) describes a separate rollover for QSBS held more than 6 months: if you buy replacement QSBS within the 60-day period beginning on the date of the sale and make the choice, you postpone gain by reducing the basis of the replacement stock. On Form 8949 it is reported with code R. The rollover is a deferral, not an exclusion, and the replacement stock must itself be QSBS.

What a reader can do with this

• Find your regime first. Write down, for each private-company position, the date you acquired the stock and the date the company issued it. Acquisition by July 4, 2025 or earlier puts you under the 5-year rule; July 5, 2025 or later puts you under the tiers.
• Check the issue-date ceiling. For stock issued after July 4, 2025 the company’s aggregate gross assets (cash plus adjusted bases, 1202(d)(2)) must not exceed $75,000,000 before and immediately after issuance; for earlier stock the Schedule D instructions give $50,000,000. Ask the company whether it will confirm in writing; 1202(d)(1)(C) has the corporation agree to submit reports to the Secretary and shareholders.
• Check what the company did with its own stock. Redemptions of more than 5 percent of its value in the 2-year period beginning 1 year before your stock was issued disqualify it (1202(c)(3)(B)).
• Estimate the limit before a sale. Greater of the applicable dollar limit, reduced by earlier excluded gain on the same issuer, or 10 times your adjusted basis. Gift and inheritance transfers carry the transferor’s history.
• Do not count on a form instruction to settle a new-tier question. The 2025 forms do not describe the 3-year and 4-year tiers; the controlling text is the statute as amended.
• For anything in a REIT, BDC, interval fund, DST or crowdfunded LLC, section 1202 is not part of the picture; our capital gains on real estate page and net investment income tax page cover the taxes that are.

Questions to put to a CPA or tax attorney

1. On what date did I acquire this stock, and on what date did the company issue it?
2. Which regime applies: 50, 75 or 100 percent after 5 years, or the tiers at 3, 4 and 5 years?
3. What are the company’s aggregate gross assets at issuance, and can it document them?
4. How much of the per-issuer limit have I used on this company, including through trusts, partnerships or gifts?
5. If I hold through a fund or SPV, did I hold the interest when it bought the shares?
6. Does the 7 percent AMT preference on Form 6251 line 2h apply to this stock?
7. Would the 60-day rollover be better than waiting for the next tier?

This is analysis of public documents, not investment, legal or tax advice. The person who can say whether your stock qualifies is a CPA or tax attorney with the company’s records.

FAQ

Sources, read and saved on October 19, 2026: 26 U.S.C. 1202, 26 U.S.C. 1 and 26 U.S.C. 57 (Cornell Law School Legal Information Institute, text of the United States Code); Public Law 119-21, section 70431 (govinfo.gov); IRS Instructions for Form 8949 (2025), Instructions for Schedule D (Form 1040) (2025), Instructions for Form 6251 (2025) and Publication 550 (2025). Figures marked “our arithmetic” and the hypothetical taxpayers are ours. Secondary commentary was used only to look for IRS or Treasury guidance, none of which we found. This is analysis of public documents, not investment, legal or tax advice.