Published 2026-07-07 · Optimist Tax Advisors
The July 2025 tax act made three changes to Section 1202 for stock issued after July 4, 2025, and each one changes behavior.
The per-issuer exclusion cap rose to the greater of $15M or 10x basis. For a single founder this is $5M of additional excluded gain, worth roughly $1.2M of federal tax at 23.8%. For stacked structures the effect multiplies: four taxpayers now shelter $60M rather than $40M.
The gross asset test at issuance rose to $75M. Practically, this extends QSBS eligibility one to two funding rounds deeper into a company's life. Series B and even some Series C employees and investors at capital-light companies can now receive qualifying stock that would previously have failed the test. If you joined or invested in a company recently, the qualification analysis is worth redoing rather than assuming the old answer holds.
The old regime was binary: five years or nothing. New-issue stock now earns a 50% exclusion at three years, 75% at four, and 100% at five. The change matters most in acquisition scenarios that founders do not control. A year-three sale that used to produce zero exclusion now shelters half the capped gain, and a Section 1045 rollover can carry the remainder across the line.
The regimes run in parallel. Pre-July-2025 stock keeps the $10M cap and the five-year cliff. Founders with mixed holdings, original shares plus later exercises or purchases, now hold two different tax assets and should sequence dispositions accordingly. Sell the tiered stock early if an exit forces the issue; protect the cliff stock to its five-year mark.
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