- 0% capital gains tax
- Hold stock for 5 years (if you sell before 5 years, can use the proceeds to buy another QSBS stock within 60 days)
- Cannot buy stock from another person, must get newly-issued shares
- Company’s assets must be less than $50 million, both before and after issuing the shares
What is QSBS?
QSBS (aka Section 1202 stock) reduces capital gains tax to 0% as a US-only tax reduction strategy for holding shares 5+ years that qualify for QSBS treatment.
How to qualify for QSBS treatment
- Original issuance rule: You cannot acquire stock from another person or through secondary market. The stock must be newly issued shares in a company with less than $50 million valuation post-investment.
- Hold stock for 5 years: You must hold the stock for 5 years to qualify for 0% capital gains tax under QSBS
- C-Corp: The company must be a C-corp, not an S-corp or an LLC.
- No personal services: The company’s business activities typically need to be technology, manufacturing, wholesale or retail. Personal services are prohibited, such as: banking, financing, insurance, investing, leasing, farming, mining, hotels and restaurants.
0% capital gains tax!
If you sell your QSBS shares before 5 years, you can use the proceeds to buy another QSBS stock wiithin 60 days to continue the 5 years with no tax hit.