How-to guide
How to Claim QSBS Section 1202 Exclusion
Section 1202 Qualified Small Business Stock (QSBS) allows up to $10M of capital gain exclusion on sale of C-Corp stock held 5+ years. Step-by-step claim process.
Steps
The process.
How to claim qsbs section 1202 exclusion.
Verify QSBS eligibility at acquisition
Stock must be (1) C-Corp (US), (2) acquired directly from issuance, (3) issued when company's gross assets ≤ $50M, (4) C-Corp must be 'active business' (no real estate, finance, professional services).
Hold for 5+ years
QSBS exclusion requires 5-year holding period from stock issuance. Tracker spreadsheet for each grant.
Verify continued QSBS status
Company must remain 'qualified' during your holding period. Watch for: changing to S-Corp, becoming financial services, gross asset growth above limits at issuance.
Get QSBS attestation letter
At sale time, request CPA letter from issuing company confirming QSBS status. Critical defence in audit.
Calculate exclusion
Exclusion is greater of (a) $10M per issuer, or (b) 10× basis. Excluded gain is excluded from federal AND state tax in most states (California taxes it, NY excludes).
Report on Form 8949 + Schedule D
On Schedule D / Form 8949, report sale and apply Section 1202 exclusion code 'Q'. Attach Form 8949 with details.
Maintain documentation
Keep grant docs, QSBS attestation, 83(b) election proof, gross asset verification, sale docs. IRS audits aggressive QSBS claims.