Section 1202 – The $15 Million Tax-Free Exit
The Strategy
Internal Revenue Code Section 1202, also known as Qualified Small Business Stock (QSBS), is arguably the most powerful tax break in existence. It allows you to exclude up to 100% of capital gains on the sale of stock in certain small businesses.
The 2026 Update
Under the OBBB legislation, the rules for stock issued after July 4, 2025, have been modernized. For 2026, the gain exclusion cap has been increased from $10 million to $15 million (indexed for inflation).
Key Requirements for 100% Exclusion:
The Corporation: Must be a domestic C-Corp with gross assets under $75 million at the time the stock is issued.
The Holding Period: For stock issued after July 4, 2025, a new "sliding scale" applies: 50% exclusion at 3 years, 75% at 4 years, and the full 100% at 5 years.
Active Business: 80% of assets must be used in the active conduct of a qualified trade (excludes most service fields like law, health, and finance).
Why Now?
If you are starting a company or receiving equity in 2026, documenting your QSBS Attestation immediately is vital. This turns a future multi-million dollar tax bill into a $0 liability.
