Definition
The Section 1202 exclusion is the QSBS gain exclusion for eligible qualified small business stock.
How It Works
Recent law expanded QSBS treatment. The updated exclusion can reach $15M for qualifying stock, the gross asset threshold increased to $75M, and holding-period treatment may include shorter or tiered exclusion levels for qualifying stock depending on acquisition date. Older stock may still be governed by legacy 5-year, $10M, and $50M rules.
Example
A founder who meets the five-year holding period and other tests excludes millions of dollars of gain from federal tax under Section 1202 when the company is acquired.
Who It Applies To
Founders, early employees, and investors in qualifying C-corporations.
Watch-Outs
Eligibility depends on acquisition date and structure. Confirm stock issuance, C-corporation status, active-business qualification, gross assets, and holding period before relying on the exclusion.
