Did OBBBA change the QSBS rules for stock I already own?

No. The tiered holding period, the $15 million cap, and the $75 million gross assets threshold only apply to stock acquired after July 4, 2025. Stock acquired on or before that date keeps the five-year holding period, the $10 million cap (or 10× basis), and the $50 million asset test.

Can I sell QSBS after three years and pay no tax?

No. For stock acquired after July 4, 2025, a three-year hold gets a 50% exclusion. The other half is taxed at a 28% base rate instead of 20%, which works out to roughly 14% on a capped gain, or about 15.9% if net investment income tax also applies. At five years it's zero.

What is the QSBS exclusion cap in 2026?

The greater of $15 million or ten times the aggregate adjusted basis of the QSBS disposed of during the year, per issuer, per taxpayer, for stock acquired after July 4, 2025. That basis is measured without regard to any addition to basis after the stock was originally issued. The $15 million figure is indexed for tax years beginning after 2026, using calendar year 2025 as the base and rounding to the nearest $10,000. Under §1202(b)(5)(B), once eligible gain exceeds the applicable dollar limit in a year, the limit for every subsequent year is zero, so indexation adds nothing once the cap is used up.

Is QSBS stacking through non-grantor trusts still allowed?

As of August 2026, yes. No statute or regulation prohibits it, and §1202(h)(2)(A) expressly preserves QSBS character and the donor's holding period on gifted stock. Treasury officials said publicly in May 2026 that guidance is coming, and press reports in June 2026 indicated it was being prepared, but nothing has been issued. The assignment-of-income doctrine already reaches transfers made close to a sale.

What is the QSBS cap for married taxpayers filing separately?

Section 1202(b)(3)(A) halves it: $5 million in place of $10 million for stock acquired on or before July 4, 2025, and half the applicable dollar amount for stock acquired after. On a joint return, gain taken into account is allocated equally between spouses for applying the limit in later years.

What if a client sells QSBS before meeting the holding period?

Section 1045 allows a taxpayer who elects it to defer gain on QSBS held more than six months, to the extent the amount realized is reinvested in the cost of other QSBS purchased within the 60-day period beginning on the date of sale. It's deferral through basis reduction, not exclusion.

Which businesses can't issue QSBS?

Section 1202(e)(3) excludes service businesses in health, law, engineering, architecture, accounting, actuarial science, performing arts, consulting, athletics, financial services and brokerage; banking, insurance, financing, leasing and investing; farming; mineral extraction; and hotels, motels and restaurants. OBBBA didn't change this list.

QSBS After OBBBA: Which Rules Apply to Which Shares

Sam Sur
Aug 4
12 min read

Abstract network visualization on dark navy showing a single cap table separating into four Section 1202 tax regimes by issuance date — The rule is easy to look up. Knowing which rule applied to which shares, on which date, held by which taxpayer, is not.

A founder brings you a cap table with three issuances: common stock from incorporation in 2019, a preferred round in 2023, and a recapitalization in early 2026.

Those are three different QSBS regimes under Section 1202.

The 2019 and 2023 blocks follow the old rules: five-year holding period, exclusion cap of the greater of $10 million or 10× basis, $50 million gross assets test at the issuer. The 2026 block follows the new rules: tiered holding period starting at three years, $15 million cap, $75 million gross assets test.

One company, one shareholder, one cap table, and different answers to when he can sell, how much is excludable, and what rate applies to the rest.

The One Big Beautiful Bill Act (OBBBA) (H.R. 1, P.L. 119-21, July 4, 2025) has been reported as a straightforward expansion of a founder-friendly provision. It is one. It also turned §1202 from one rule into four that run at the same time.

Here's why that matters more than it sounds. For thirty years, advising on QSBS was a knowledge problem. Learn the rule, apply it. It's now a records problem. The rule is easy to look up. What's hard is knowing which rule applied to which shares, on which date, held by which taxpayer, with how much exclusion capacity already used. That information exists, but it's spread across five systems that don't talk to each other.

The rest of this is the case for that. The details matter because they're what make the tracking burden real: four regimes, a rate trap that costs seven figures on a mistimed sale, and a per-taxpayer cap Treasury has started asking about.

Four regimes now run in parallel, set by issuance date.

The exclusion percentage has always depended on when the stock was issued. OBBBA added a fourth layer and left the first three in place.

Stock acquired	Holding period required	Maximum exclusion	Per-issuer cap	Issuer gross assets limit
Before Feb. 18, 2009	More than 5 years	50%	Greater of $10M or 10× basis	$50M
Feb. 18, 2009 – Sept. 27, 2010	More than 5 years	75%	Greater of $10M or 10× basis	$50M
Sept. 28, 2010 – July 4, 2025	More than 5 years	100%	Greater of $10M or 10× basis	$50M
After July 4, 2025	3 yrs → 50%; 4 yrs → 75%; 5 yrs → 100%	100% at five years	Greater of $15M or 10× basis, indexed after 2026	$75M, indexed from 2027

Sources: 26 U.S.C. §1202 as amended by P.L. 119-21 §70431; The Tax Adviser; Holland & Knight; Grant Thornton.

Two effective-date wrinkles worth noting. The holding-period tiers and the dollar cap key off when the taxpayer acquired the stock (§1202(a)(6), with §1223 tacking, and §1202(h) carrying the transferor's position through on gifts). The gross assets threshold keys off when the stock was issued. P.L. 119-21 §70431(c)(3) applies the $75M figure to "stock issued after" July 4, 2025. For stock bought at original issuance those dates are the same; after a gift they may not be.

Three things the summaries tend to skip:

Old stock didn't move to the new rules. Stock issued on or before July 4, 2025 stays under the old regime: five-year cliff, $10 million cap, $50 million asset test. There's no election to bring it forward.
The 10× basis alternative didn't change. If your client has real basis, the $15 million number often doesn't matter, because the cap is ten times aggregate adjusted basis. A $30 million investment can support up to $300 million of excluded gain, same as before OBBBA.
Acquisition date isn't always the issuance date. Tacked holding periods under §1223 carry through, so gifts, certain exchanges, and reorganizations can shift a block's effective acquisition date, and with it, which regime applies.

The 28% rate makes the new tiers worth less than they look.

On a $15 million capped gain, selling at year three instead of year five costs about $2.1 million in federal tax. Year four instead of year five costs about $1.05 million.

That's because of a rate most summaries leave out. Gain from QSBS getting a 50% or 75% exclusion is taxed at a 28% base rate, not the 20% long-term capital gains rate. Excluded gain isn't net investment income, but the taxable remainder generally is, which adds 3.8%.

Assume post-July 2025 QSBS, negligible basis, gain at or above the $15 million cap:

Hold	Exclusion	Excluded	Taxable within cap	Tax at 28%	Effective rate on $15M	Effective rate if NIIT also applies
3 years	50%	$7,500,000	$7,500,000	$2,100,000	14.00%	15.90%
4 years	75%	$11,250,000	$3,750,000	$1,050,000	7.00%	7.95%
5 years	100%	$15,000,000	$0	$0	0.00%	0.00%
No QSBS	n/a	n/a	$15,000,000	$3,000,000 (at 20%)	20.00%	23.80%

How the 28% rate works: §1(h)(4) puts "section 1202 gain" into 28-percent rate gain, and §1(h)(7) defines that as the gain that would have been excluded but for the percentage limitation in §1202(a). Gain above the dollar cap isn't "section 1202 gain," so it stays at 20%.

Treasury's own economists use the same numbers. OTA Working Paper 127 describes the effective rate on §1202 gains under the 50% exclusion as "unchanged at 14 percent" for taxpayers not subject to AMT, and says the 2009 move to a 75% exclusion lowered it "from 14 to 7 percent."

On the 3.8%: excluded gain is outside net investment income and gain above the cap is inside it. The middle case, the taxable portion within the cap, turns on §1411(c)(1)(A)(iii), which counts "net gain (to the extent taken into account in computing taxable income)." No published authority addresses it squarely, and Treasury's working paper describes the 2013 arrival of NIIT as having "no effect on the taxation of QSBS gains." The right-hand column shows the outcome if NIIT does reach it; the bolded column doesn't assume it.

Holland & Knight's example works the same way: stock acquired January 1, 2026 for nominal consideration, sold January 1, 2029 for $20 million. That's $7.5 million excluded, $7.5 million taxed at 28%, and $5 million taxed at 20%, or about $3.1 million in federal capital gains tax before NIIT.

So the three-year tier isn't really a shorter holding period. It's an option to exit early with a price attached. Don't tell a client "we qualify at three years" without running the number first. Running it means knowing the issuance date of every lot.

Stacking is legal, contested, and defended by records rather than structure.

The §1202 cap applies per taxpayer, per issuer. So moving QSBS to separate taxpayers (usually non-grantor trusts, each filing its own return with its own exclusion) increases the total gain excluded. Section 1202(h) keeps QSBS character and the donor's holding period on gifted stock. Nothing prohibits it.

This isn't a fringe strategy. Treasury's Office of Tax Analysis found that in 2021, when §1202 exclusions peaked at $51.1 billion, complex trusts claimed $6.65 billion of it, roughly 13%, up from almost nothing in 2012. Roughly 25,400 trusts and estates claimed the exclusion between 2012 and 2022.

Treasury has said publicly that it means to act on this. Kenneth Kies, Treasury's assistant secretary for tax policy and acting IRS chief counsel, put it plainly at a May 2026 seminar: "Let me just warn you: We don't like stacking, OK?" The stated concern is narrower than the headlines suggest. The concern is not one trust per child, but overlapping-beneficiary structures layered on top: an "AB trust" and a "BC trust" and onward, built to manufacture additional taxpayers.

The obvious hook is §643(f), which treats two or more trusts as one where they have substantially the same grantor or primary beneficiary and a principal purpose is tax avoidance. But §643(f) applies "for purposes of this subchapter," meaning Subchapter J, while §1202 sits in Subchapter P, so using it to collapse trusts for QSBS purposes invites a textual challenge. The IRS proposed §643(f) regulations in 2018 with a rebuttable presumption of avoidance; that presumption didn't survive into the final rules. A cleaner foundation would be §1202(k), which expressly authorizes regulations to carry out §1202 and to prevent avoidance of its purposes.

The assignment-of-income doctrine isn't contested, which already reaches transfers made after the gain was effectively earned. That one needs no new guidance, and it applies today.

The defensibility of a structure has never really turned on its legal form. It turns on the evidence: separate trusts for separate beneficiaries, real donative intent, a documented non-tax purpose, actual economic separation, and transfers made well before a sale process started. Every one of those is a question about what was true and documented at a specific point years earlier. None of it can be assembled after the fact, and none of it depends on what Treasury does next.

Guidance status. Treasury officials signaled in May 2026 that guidance on stacking was coming, and press reporting in June 2026 described a drafting effort underway, with §1202 reported to be on the IRS priority guidance list. As of publication, no notice, proposed regulation, or other formal guidance has been issued, and the rules described above are the ones in effect. (Last checked: August 2026.)

Can my client sell, and what will it cost?

Here's what a firm actually needs to know to answer "can my client sell, and what will it cost":

Per block: issuance date, whether it was acquired at original issuance, what was paid for it, and which of the four regimes applies
Per issuer: aggregate gross assets at all times through immediately after each issuance, measured at the company level rather than the shareholder's, and usually not something a shareholder can verify from their own files years later
Across the holding period: whether the stock was QSBS for "substantially all" of it, and whether a redemption tainted the issuance. Eligibility is lost if the company redeemed more than 5% of its shares within a year either side of issuance, or redeemed from the purchasing shareholder or a related party inside the four-year window around it
Per taxpayer: how much of the cap has already been used across prior dispositions in the same issuer, which doesn't reset each year and doesn't go back up when the cap is indexed
Per structure: which trust holds which block, when it was funded, what the purpose was at the time, and whether that record still exists

That data is scattered across cap table software, a corporate attorney's files, a CPA's work papers, a trustee's records, and a custodial statement. Each one is right about its own piece. Nobody owns the whole picture, and the whole picture is what answers the client's question.

Treasury has documented this gap from the other side. Its Office of Tax Analysis found that "there are no information returns for QSBS issuance and no requirements for eligible corporations to register with the IRS," so "the IRS does not observe anything about QSBS until taxpayers sell the stock and claim the exclusion on Form 8949." Corporations aren't required to certify QSBS eligibility to the IRS or even to their own shareholders.

Reading as an advisor, nobody is keeping this record for your client. Not the IRS, or the company, or any third party with a filing obligation. If the file doesn't exist when the exit comes, it's because nobody built it, and by then the facts are five years old.

What this looks like under a deadline.

A tender offer is the version of this with a clock on it. The founder gets notice of a private secondary with a fifteen-day window, the election can't be undone, and the answer doesn't stay inside §1202.

Taurion decision flow for a founder tender offer, mapping lot-level QSBS status and other dependencies, four scenario paths, advisor review, and the resulting decision record

A founder liquidity event, mapped. Lot-level §1202 status is one of five live dependencies, and four different paths are defensible depending on the client's actual numbers.

Whatever path gets chosen will be reviewed years later: by a beneficiary, by an examiner looking at a trust funded close to a liquidity event, or by the founder. Nobody can accurately reconstruct what was known during a fifteen-day window three years after it closed. The record has to be made while the window is open.

Where automation helps.

Software can handle the ledger reliably: track issuance dates and tacked holding periods, run the three-, four-, and five-year clocks per block, carry forward cap usage per taxpayer per issuer, and flag when a planned sale crosses a tier boundary or a trust funding is getting close to a date that will look bad later. Those are mechanical, and they're the things that get missed.

What software shouldn't decide is whether the issuer is a qualified trade or business under §1202(e)(3), whether the 80% active business test is met, or whether a redemption tainted an issuance. Those depend on facts and judgment, and Treasury has never issued comprehensive regulations on the business activity requirements, the reorganization rules, or pass-through recognition.

The line we'd draw: software tracks what's true and when it became true. People decide what it means.

The same pattern is showing up elsewhere.

Firms are used to tax law changing a number. This is different. One provision now has four versions running at once, and which one applies to a given block of stock is a historical fact that gets harder to reconstruct every year.

We see the same shape across complex-wealth work. Answering a client's question depends less on knowing the current rule than on knowing what was true on a specific date, in a specific entity, under a specific structure, and being able to show it.

That's what we're building Taurion: to map a client's financial system as a live dependency network so dates, structures, and consequences stay connected, and capture the reasoning behind a decision when it's made rather than reconstructing it under examination later. We're working with a small group of advisory firms as design partners ahead of a broader launch.

Taurion is a technology platform. It does not provide investment, legal, or tax advice, and nothing here is a recommendation to buy, hold, sell, or transfer any security or to adopt any planning structure. Section 1202 involves fact-specific determinations, and Treasury has not issued comprehensive regulations on several of the provisions discussed. The figures above reflect published law and secondary sources as of the date of publication and are illustrative only. Any specific situation should be confirmed with qualified tax counsel.

FAQ

Did OBBBA change the QSBS rules for stock I already own? No. The tiered holding period, the $15 million cap, and the $75 million gross assets threshold only apply to stock acquired after July 4, 2025. Stock acquired on or before that date keeps the five-year holding period, the $10 million cap (or 10× basis), and the $50 million asset test.
Can I sell QSBS after three years and pay no tax? No. For stock acquired after July 4, 2025, a three-year hold gets a 50% exclusion. The other half is taxed at a 28% base rate instead of 20%, which works out to roughly 14% on a capped gain, or about 15.9% if net investment income tax also applies. At five years it's zero.
What is the QSBS exclusion cap in 2026? The greater of $15 million or ten times the aggregate adjusted basis of the QSBS disposed of during the year, per issuer, per taxpayer, for stock acquired after July 4, 2025. That basis is measured without regard to any addition to basis after the stock was originally issued. The $15 million figure is indexed for tax years beginning after 2026, using calendar year 2025 as the base and rounding to the nearest $10,000. Under §1202(b)(5)(B), once eligible gain exceeds the applicable dollar limit in a year, the limit for every subsequent year is zero, so indexation adds nothing once the cap is used up.
Is QSBS stacking through non-grantor trusts still allowed? As of August 2026, yes. No statute or regulation prohibits it, and §1202(h)(2)(A) expressly preserves QSBS character and the donor's holding period on gifted stock. Treasury officials said publicly in May 2026 that guidance is coming, and press reports in June 2026 indicated it was being prepared, but nothing has been issued. The assignment-of-income doctrine already reaches transfers made close to a sale.
What is the QSBS cap for married taxpayers filing separately? Section 1202(b)(3)(A) halves it: $5 million in place of $10 million for stock acquired on or before July 4, 2025, and half the applicable dollar amount for stock acquired after. On a joint return, gain taken into account is allocated equally between spouses for applying the limit in later years.
What if a client sells QSBS before meeting the holding period? Section 1045 allows a taxpayer who elects it to defer gain on QSBS held more than six months, to the extent the amount realized is reinvested in the cost of other QSBS purchased within the 60-day period beginning on the date of sale. It's deferral through basis reduction, not exclusion.
Which businesses can't issue QSBS? Section 1202(e)(3) excludes service businesses in health, law, engineering, architecture, accounting, actuarial science, performing arts, consulting, athletics, financial services and brokerage; banking, insurance, financing, leasing and investing; farming; mineral extraction; and hotels, motels and restaurants. OBBBA didn't change this list.