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July 6, 2026 • 1-minute read
Section 1202 of the Internal Revenue Code offers one of the most powerful tax incentives available to startup and small business investors — allowing non-corporate taxpayers to exclude up to 100% of their gain from the sale of qualified small business stock (QSB stock), potentially resulting in a federal tax rate of 0%.
In this article, Vinson & Elkins Tax Partner David Strong provides a comprehensive overview of Section 1202, including the four core eligibility requirements, how gain exclusions are calculated, and the rollover provisions available under Section 1045. The article also addresses the significant changes introduced by the One Big Beautiful Bill Act (July 2025), which raised the aggregate gross assets cap to $75 million, increased the minimum per-investor exclusion limit to $15 million, and introduced a new tiered holding period structure for stock acquired after July 4, 2025.
Whether you are structuring a new investment, advising a portfolio company, or planning for exit, this article offers practical guidance on maximizing Section 1202 benefits — and avoiding the common pitfalls that can inadvertently disqualify otherwise eligible stock.
Download the full article in the right column.
This information is provided by Vinson & Elkins LLP for educational and informational purposes only and is not intended, nor should it be construed, as legal advice.
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