Updated July 28, 2026. Quick answer: For stock issued after 4 July 2025 the exclusion is tiered: 50% at three years, 75% at four, 100% at five (IRC §1202(a)(5)). For stock issued on or before that date there is no partial credit — five years or nothing.
The two schedules
| Years held | Issued on/before 4 Jul 2025 | Issued after |
|---|---|---|
| Under 3 | 0% | 0% |
| 3 | 0% | 50% |
| 4 | 0% | 75% |
| 5 or more | 100% | 100% |
The 28% detail that changes the maths
At three and four years the non-excluded portion is taxed at 28%, not the usual long-term rates. So a four-year sale excludes 75% and taxes the remaining quarter at a higher rate than a sale of ordinary long-held stock would face. The gap between four years and five is wider than 75% versus 100% implies.
The clock runs from issuance to sale. An acquisition, a recapitalisation, or a conversion can affect whether your holding period carries over — and those events are usually not in your control, which is the argument for not cutting the five-year mark fine.
Where the old regime still bites hardest
Most people holding QSBS today are on the old schedule. For them a sale at four years and eleven months excludes nothing whatsoever — the entire gain is taxable. That cliff is the single most expensive date in Section 1202, and it has not gone away for existing holders.
Sources
IRC §1202(a)(5) (tiered exclusion); IRC §1202(b)(1) (10x basis alternative); new IRC §1202(b)(4) ($15,000,000 cap and inflation indexing from 2027); One Big Beautiful Bill Act, enacted 4 July 2025. Cross-checked against professional analyses from The Tax Adviser (AICPA), Baker Tilly, Holland & Knight, K&L Gates, Mintz, Davis Wright Tremaine and Grant Thornton, July–November 2025.
This states what the cited authority says. It is not tax advice, and Section 1202 qualification turns on facts about the issuing company that no page can verify for you.