# The $15 Million Exit: A QSBS Guide for CPAs and Founders

Source: https://integrityfinancialplan.com/cpa-partners/qsbs-exit-guide
Last updated: 2026-09-28

How the Section 1202 qualified small business stock exclusion works after the 2025 tax law, who qualifies, the 3/4/5-year tiers, the $75 million asset cap, and the planning that has to happen years before a sale.


Under Section 1202, a founder who sells qualified small business stock can exclude up to $15 million of federal capital gain (or 10 times basis, if greater) for stock issued after July 4, 2025. The catch is that every requirement has to be in place years before the letter of intent.

## Key takeaways

- For QSBS issued after July 4, 2025, the per-issuer exclusion cap is $15 million (indexed), the gross-asset threshold is $75 million, and partial exclusions of 50% and 75% apply after three and four years, with 100% after five.
- Stock issued on or before July 4, 2025 keeps the prior rules: $10 million cap, $50 million asset test, and a five-year holding period for any exclusion.
- Only original-issue stock of a domestic C-corporation in a qualified trade or business qualifies; S-corporations and most professional-services businesses do not.

## Who this is for

- Founders and early investors in C-corporations, or owners considering converting to one
- CPAs advising clients who may sell a business in the next three to ten years

## Problems it solves

- An S-corporation or LLC structure that cannot issue QSBS
- A holding-period clock that nobody started
- Discovering the exclusion during due diligence, when it is too late

## What makes it different

We help CPAs and owners run the analysis early, coordinate the entity work with counsel, and plan the post-sale portfolio and estate moves that a large exclusion makes possible.

## What Section 1202 does

Internal Revenue Code Section 1202 lets non-corporate shareholders exclude federal capital gain on the sale of qualified small business stock (QSBS). Congress enacted it to encourage long-term investment in operating businesses. The exclusion is per issuer and per taxpayer, capped at the greater of a dollar limit or 10 times the taxpayer's adjusted basis in the stock.

## The requirements

1. **Entity type.** The issuer must be a domestic C-corporation when the stock is issued and during substantially all of the holding period.
2. **Original issuance.** You must acquire the shares directly from the corporation for money, property, or services, not from another shareholder.
3. **Gross assets.** The corporation's aggregate gross assets cannot exceed the limit ($50 million for stock issued on or before July 4, 2025; $75 million after) at any time before and immediately after issuance.
4. **Active business.** At least 80% of assets must be used in a qualified trade or business. Professional services, financial services, hospitality, farming, and extraction businesses are excluded.
5. **Holding period.** Five years for stock issued on or before July 4, 2025. For later issuances, 50% exclusion at three years, 75% at four, and 100% at five.

## Old rules versus new rules

| | Stock issued on or before July 4, 2025 | Stock issued after July 4, 2025 |
| --- | --- | --- |
| Per-issuer cap | $10 million or 10× basis | $15 million (indexed after 2026) or 10× basis |
| Gross-asset test | $50 million | $75 million (indexed after 2026) |
| Holding period | 5 years for 100% | 3 years 50%, 4 years 75%, 5 years 100% |

## Why timing decides everything

The holding period begins on the day the C-corporation issues your stock, not the day you founded an LLC or elected S status. Once a buyer submits a letter of intent, your structure is effectively locked; there is no election or retroactive filing that starts the clock mid-transaction. If you might sell in 2031, the restructuring conversation belongs on this year's calendar.

## The trade-offs

Converting to a C-corporation means corporate-level tax on operating profits and a second layer of tax on dividends, which can cost more than the exclusion saves for a business that distributes most of its earnings and is unlikely to sell. The analysis has to compare the expected exit value, the years to exit, and the operating profile of the business. That is the work we do with your CPA.

## What happens after the exit

A large excluded gain changes the rest of the plan: where the proceeds are invested, how much gain the new portfolio should realize each year, and whether gifting or trust strategies (including stacking the exclusion across trusts, which requires careful counsel) belong in the picture. See our [business owner](/who-we-serve/business-owners) page and the [Personal Index Portfolios](/services/personal-index-portfolios) we use for post-sale portfolios.

For the full walk-through, read [The $15 million exit mistake](/insights/section-1202-qsbs-exit-tax) or [request the CPA Survival Guide](/cpa-partners).

## Frequently asked questions

### What changed for QSBS in 2025?

The July 2025 tax law (often called the One Big Beautiful Bill Act) raised the per-issuer cap from $10 million to $15 million, raised the corporate gross-asset limit from $50 million to $75 million, and added tiered exclusions of 50% after three years and 75% after four years, with 100% after five. The changes apply to stock issued after July 4, 2025.

### Can an S-corporation qualify for QSBS?

No. QSBS must be original-issue stock of a domestic C-corporation. Converting an S-corporation or LLC to a C-corporation can start the clock, but the holding period begins at the new issuance, not when the business was founded.

### Which businesses are excluded?

Section 1202 excludes businesses whose principal asset is the reputation or skill of employees, including health, law, engineering, accounting, financial services, consulting, and hospitality, along with banking, farming, and certain extraction businesses. Most technology, manufacturing, and product companies can qualify.

### How much tax can QSBS save on a $15 million sale?

At a 20% federal capital gains rate plus the 3.8% net investment income tax, a $15 million gain with little basis produces roughly $3.5 million of federal tax. If the stock fully qualifies as QSBS issued after July 4, 2025, that federal tax can drop to zero. State tax depends on the state; Texas has no personal income tax.