A screening tool for the Section 1202 qualified small business stock exclusion. Stock-level qualification, holder eligibility, holding period, the dollar limit, account ownership, and state treatment are separate determinations; this tool walks each one. The verdict updates as you go, and you can export the completed analysis as a PDF.
One lot per analysis. Record each issuance, vesting tranche, option exercise, conversion, gift, partnership distribution, and reorganization as a separate lot and run this analysis for each.
Nothing is stored — not on a server, not on your device. Your answers exist only in this open tab and disappear when you close or refresh it. The exported PDF is the only record; export it before you leave.
Retain your support. Nothing is uploaded here. Each question lists the records that substantiate the answer; keep them in your files with the exported PDF.
Nothing you enter is transmitted or saved. Closing or refreshing this tab clears every answer.
The exclusion percentage, holding period, and holder dollar limit turn on the date the holder is treated as acquiring the stock (after applying §1223 tacking). The issuer's gross-asset ceiling turns on the date the stock was issued. Assumes calendar-year taxpayers.
The date the corporation actually issued these shares. For shares received on conversion, this is the conversion date. For a qualifying §1202(f) conversion of QSBS preferred, the gross-asset testing event is the preferred stock's original issuance (entered below) and the test is not rerun at conversion; otherwise this date is the gross-asset testing date.
Support: Stock certificate or ledger entry, stock purchase or subscription agreement, board consent approving the issuance.Required. Check the box if it equals the original issuance date. For stock received by gift, inheritance, or qualifying partnership distribution, or in a §1202(f) or (h)(4) exchange, use the tacked date. For option or warrant exercises, this is the exercise date — an option grant is not a transfer of stock (Reg. §§1.83-3(a)(2), 1.83-7(a)).
Support: Gift letter, estate or trust distribution records, partnership distribution statement, exercise notice, or exchange agreement.If the convertible instrument is respected as debt for federal income-tax purposes, it is not stock, and the §1202 stock-acquisition and gross-asset testing event ordinarily occurs when stock is issued on conversion. A SAFE or another hybrid instrument requires classification based on its terms. Convertible preferred that was itself QSBS tacks under §1202(f).
Support: The note, SAFE, or preferred stock terms; conversion notice; post-conversion stock ledger.The date the instrument converted into the shares in this lot. Ordinarily equals the legal issuance date above.
Used as the relevant original QSBS testing event: the gross-asset ceiling and the tacked acquisition date run from this date. The conversion shares' legal issuance date is preserved separately above.
Without an 83(b) election, the holder's holding period begins at vesting, and each vesting date is a separate lot. Whether the corporation's §1202 issuance and gross-asset testing date also moves to vesting is not settled by controlling authority.
Support: Restricted stock purchase agreement, vesting schedule, stamped or mailed §83(b) election with proof of timely filing.§1202 applies to gain from a sale or exchange. Installment recognition spans tax years and dollar limits; a reorganization may carry QSBS status rather than trigger a taxable disposition.
Support: Sale, merger, or redemption agreement; closing statement; installment note; plan of reorganization.Only a redemption satisfying §302(b) receives exchange treatment; otherwise it is a §301 distribution and does not produce the sale-or-exchange gain §1202(a)(1) requires.
Compensation recognized at vesting or exercise is generally a separate event and should be included in the stock's basis when appropriate. Special transactions — dividend-treated redemptions, §306 stock, reorganization boot — require allocation and technical review.
Enter the adjusted basis of this QSBS lot, determined under the applicable carryover, transfer, compensation, or exchange rules, but disregard additions to basis occurring after the stock's original issuance. If property other than cash was contributed for the stock, the holder's §1202 basis is not less than the property's fair market value at contribution.
Support: Payment records, contribution agreement and FMV appraisal, Form W-2 or 1099 for stock received for services, exercise notice and payment, transferor's basis records for carryover basis.The flat dollar limit is reduced by eligible gain previously taken into account under §1202(a) — the full amount, not just the portion excluded. Include gain on 50% and 75% exclusion stock. Enter zero if this is the first disposition.
Support: Prior-year Forms 8949 and Schedules D reporting §1202 gain on this issuer.The $15 million limit for post–July 4, 2025 stock is also reduced by current-year eligible gain on the issuer's pre–July 5, 2025 stock. Enter zero if none.
If so, the post-2025 flat dollar limit for later years is zero notwithstanding inflation adjustments. The 10× basis alternative is still evaluated.
The statute provides separate flat dollar limits for the two classes with cross-reductions, but a single 10× basis alternative measured on the aggregate basis of the issuer's QSBS disposed of in the year. The interaction is not settled by published regulations.
The applicable entity perimeter depends on the test. For the gross-asset test, aggregate the issuer, its predecessors, and all corporations in the applicable more-than-50% parent-subsidiary controlled group (§1202(d)(3)). For the active-business test, apply the separate more-than-50%-owned subsidiary look-through rule (§1202(e)(5)(A), (C)); it does not look upward to a common parent or across to siblings. The redemption tests apply to purchases made directly or indirectly by the issuing corporation, including specified §304 transactions.
An LLC taxed as a partnership does not qualify. Stock issued while the company was an S corporation does not qualify.
Support: Certificate of incorporation, Forms 1120 for each year of the holding period, any Form 2553 or 8832 history.Terminating an S election does not issue new stock. Existing S-corporation shares do not become originally issued C-corporation stock merely because the election terminates.
Aggregate gross assets means cash plus the adjusted tax basis of all other property, with contributed property counted at fair market value at contribution (§1202(d)(2)). Aggregate the issuer, every predecessor, and every corporation in the applicable more-than-50% parent-subsidiary controlled group — including a common parent and sibling corporations, not merely subsidiaries the issuer owns directly (§1202(d)(3)).
Include the cash raised in the round that issued these shares.
Support: Tax-basis balance sheet immediately after the closing; financing-closing records showing proceeds.Once the ceiling is crossed, no stock issued afterward can qualify, even if assets later fall back below it. Year-end figures alone do not establish that the ceiling was never crossed.
Support: General-ledger detail; interim tax-basis balance sheets; acquisition and disposition records; financing-closing records; controlled-group and predecessor records; records of major property contributions and extraordinary transactions; Forms 1120 as a starting point.Test the 80% requirement for each material period during the entire holding period. After the corporation has existed for at least two years, no more than 50% of total asset value may be treated as active solely under the working-capital rule (§1202(e)(6)). A more-than-50% subsidiary is looked through: the parent is treated as owning its ratable share of the subsidiary's assets and conducting its ratable share of the subsidiary's activities (§1202(e)(5)(A), (C)). Because "substantially all" is not a fixed percentage, a failed material period is routed to review rather than an automatic result.
An independent failure rule: exceeding this threshold means the corporation fails the active-business requirement for that period regardless of the 80% computation. Denominator is assets in excess of liabilities; §1202(e)(6) working-capital assets are excluded from the portfolio-stock category.
Support: Investment schedules and balance sheets for each material period.An independent failure rule. Ownership of, dealing in, or renting real property is not itself active conduct; owner-occupied operating premises are not automatically bad assets.
Support: Real property schedules, leases, and balance sheets showing the use of each property.Checking a field does not by itself determine the result. Identify the activity, the periods involved, and the related asset value, and enter that value as excluded-activity assets in the 80% test above. "Principal asset" is a test only within the reputation-or-skill category.
Support: Business plan, revenue by service line, marketing materials, corporate tax return business-activity code, contracts.A specialized small business investment company is treated as meeting the active business requirement, but only during periods in which it so qualifies.
Both tests cover stock purchased directly or indirectly by the corporation, including transactions treated as redemptions under §304 (§1202(c)(3)(C)). Each path runs: purchase identified → de minimis test → regulatory-exception test → (for the company-wide rule) 5% test → result.
Purchases by a related corporation, or transfers of the issuer's stock to a controlled corporation for property, can be treated as redemptions.
Support: Cap tables and transaction records for the issuer and related corporations.A purchase is disregarded unless it exceeds both thresholds.
C corporations cannot claim the exclusion. Partnerships, S corporations, RICs, and common trust funds are §1202(g) pass-through entities. Trusts and estates are not §1202(g) entities and are analyzed separately.
Support: Trust instrument, partnership or operating agreement, Schedules K-1, account statements.Married filing separately halves the flat dollar limit. For a joint return, eligible gain taken into account under §1202(a) is allocated equally between the spouses for purposes of tracking the per-issuer limit in later years.
The benefit is limited to the interest held on the acquisition date.
Stock bought from another shareholder on the secondary market is not QSBS.
Support: Stock purchase or subscription agreement with the corporation; option or warrant agreement and exercise notice; gift, estate, or partnership distribution documents; plan of reorganization.Only stock received as compensation for services provided to the issuing corporation, other than underwriting services, satisfies this original-issue route.
Distributions from an S corporation, RIC, common trust fund, estate, or trust do not use this branch.
Confirm the transaction qualified under the cited section, including any continuity, business-purpose, and control requirements of that section.
If not, only gain accrued as of the exchange date (built-in gain) is treated as eligible gain on the replacement stock.
Successive exchanges carry the earlier limitation forward.
A short sale of substantially identical property, a put option on substantially identical property, or any transaction that substantially reduces the risk of loss. Positions held by related persons are attributed to the holder. The exclusion is denied unless the stock had already met the applicable holding period when the position was taken and the holder elects to recognize gain as if sold at fair market value on that date.
Support: Brokerage statements and derivative contracts for the holder and related persons.Per-issuer limit for the year of disposition: the greater of (a) the applicable flat dollar limit — $10 million for stock acquired on or before July 4, 2025; $15 million for stock acquired after, indexed for taxable years beginning after 2026 and rounded to the nearest $10,000 — reduced by eligible gain on the issuer's stock taken into account in prior years and, for the $15 million limit, by current-year eligible gain on the issuer's pre–July 5, 2025 stock; or (b) 10× the aggregate adjusted basis of the issuer's QSBS disposed of in the year. Married filing separately halves the flat limit. Apply the flat-limit rules separately to the pre- and post–July 4, 2025 acquisition classes with the required cross-reductions; the two classes do not create two independent exclusions.
Indexed amounts: the $15 million holder limit (§1202(b)(5)) and the $75 million issuer gross-asset ceiling (§1202(d)(4)) are separately adjusted for inflation for taxable years beginning after 2026. Until the IRS publishes a year's figures, this tool uses the base amounts and flags the result for confirmation.