Five years for the full exclusion. That part hasn’t changed. What changed in July 2025 is what a shorter hold is worth, and the answer now depends on the day you acquired the stock.
Stock acquired after July 4, 2025 earns the Section 1202 exclusion in tiers: 50% of the gain is excluded once you’ve held for three years, 75% at four, and 100% at five. Stock acquired on or before July 4, 2025 stays on the older rule for its whole life: nothing until you’ve held more than five years, then 100%. If you’re not sure which side of the line your shares fall on, the acquisition date decides it, and the QSBS calculator will route a position to the right rulebook and show you each date it crosses into a better tier.
When the clock starts
The holding period runs from the day the stock was issued to you. For an angel writing a check into a priced round, that’s the closing date. For everyone else it’s later than they think:
- A SAFE or convertible note isn’t stock, so the clock generally doesn’t start until it converts at the priced round. Measuring from the wire date is the most common way to come up years short.
- Stock options start the clock on the day you exercise. Not the grant date, not the vesting date, and not your start date.
- RSUs start it on the day they settle into shares, which at most companies is at or after an IPO.
The anniversary is a cliff, not a ramp
The tiers are steps, not an accrual. A lot on the new schedule is worth nothing at two years and eleven months and 50% a month later; there is no partial credit for the time in between. Under the old rule the drop is steeper: four years and eleven months is worth exactly as much as one day.
The two schedules also count the anniversary itself differently. The new tiers read “held for at least” three, four, or five years, so a tier opens on the anniversary. The old rule reads “more than five years,” which is the day after the fifth anniversary. Selling pre-2025 stock on the anniversary itself leaves you one day short of the exclusion, and one day short is the same as never having qualified. If a sale is anywhere near a milestone, check the actual date before you sign.
What a partial tier is worth
Less than the percentage suggests. Gain that qualifies as QSBS but isn’t excluded is taxed at up to 28%, not the ordinary 20% long-term rate, so a 50% exclusion cuts the bill by about a third rather than half. Three years is a real benefit under the new rules, but it isn’t half of five.
Ways the clock carries over
A few transfers keep the holding period intact. Stock received by gift or inheritance takes the original holder’s acquisition date. Preferred stock converted into common keeps the date the preferred was issued. And if you have to sell before you qualify, a Section 1045 rollover lets you carry the holding period into newly issued QSBS, provided you’ve held more than six months and reinvest within 60 days.
What never carries over is a purchase from another holder. Shares bought in a tender offer or on a secondary market aren’t QSBS at any holding period.
Write the date down
Every one of these rules turns on a date you won’t be able to reconstruct from memory years later: the closing, the conversion, the exercise. Record it when you invest, while the answer is still one email away. Signed keeps a clock on every QSBS-flagged position so the next milestone is never a surprise, but a spreadsheet with the right column does the job too. This is general information, not tax advice.