How-to / IRC § 1202
How to Stack QSBS Exclusions
The § 1202 exclusion shields up to $10M of gain per taxpayer per issuer. Gifting shares to non-grantor trusts can multiply that cap — here's the five-step stacking playbook.
Reviewed by
Financial Freedom Librarian
Fiduciary Research Editor
J.D., LL.M. (Taxation) — supervising fiduciary review
Last updated
View all sources →Step 1
Verify the stock qualifies as QSBS
Issuer must be a domestic C-corp with <$50M gross assets at issuance, conduct an active trade or business, and the stock must be acquired at original issuance for cash, property, or services.
Verify this step
Step 2
Form non-grantor trusts as separate taxpayers
Each non-grantor trust counts as its own § 1202 taxpayer. Common stacking vehicles include DING, NING, and irrevocable beneficiary trusts.
Verify this step
Step 3
Gift QSBS shares to the trusts before the 5-year hold completes
Transfer by gift before the holding period closes — the trust tacks the founder's holding period under § 1223(2). File Form 709 to report the gift.
Verify this step
Step 4
Hold for 5 years from original issuance
Each trust must satisfy the § 1202(c)(1) 5-year hold (tacked from the founder). During the hold, monitor for disqualifying redemptions under § 1202(c)(3).
Verify this step
Step 5
Sell and claim the exclusion on Form 8949
Each trust reports the sale and excludes up to $10M of gain on Form 8949 with code 'Q'. Archive the QSBS qualification memo, gift documentation, and trust returns.
Verify this step
Statutes & authorities
- IRC § 1202 — Partial exclusion for gain on QSBS
- IRC § 1045 — Rollover of gain from QSBS to other QSBS
- IRC § 1223(2) — Tacked holding periods
- IRC § 2501 — Gift tax