Two Doors. One Costs You $1.9 Million.
Same company. Same stock. Same you. The only difference is which shares you sell first — and when. One order saves you $15 million in tax-free gains. The other chops that number to $10 million.
The trapdoor is buried in one subsection of the tax code.
The Two Piles
Quick setup. Section 1202 of the tax code lets you exclude the gain when you sell stock in a small business. Zero federal tax on up to millions in profit. It's called QSBS. Qualified Small Business Stock. Founders and early investors use it to keep entire exits tax-free.
On July 4, 2025, Trump signed the One Big Beautiful Bill Act. The law bumped the QSBS cap from $10 million to $15 million.
But here's the catch. That $15 million cap only applies to stock you buy after July 4. Stock you bought before that date? Still stuck at $10 million. No blending. No conversion. No retrofit. Two separate piles sitting in the same company.
Most people stop here and assume the caps stack. $10 million plus $15 million. $25 million tax-free.
They don't stack. Not cleanly.
The Wall
Old stock gets a $10 million cap. New stock gets a $15 million cap. Two doors. Two signs.
The problem is what happens between them, one tax year to the next.
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The Trapdoor
I'm going to quote the actual statute. This is Section 1202(b)(4). Read it slow.
If such stock was acquired by the taxpayer on or before the applicable date, $10,000,000, reduced by the aggregate amount of eligible gain taken into account by the taxpayer under subsection (a) for prior taxable years and attributable to dispositions of stock issued by such corporation and acquired by the taxpayer before, on, or after the applicable date.
Read it again. Every disposition. Before, on, or after the applicable date. All of it counts against the $10 million cap.
Now look at the new stock cap:
If such stock was acquired by the taxpayer after the applicable date, $15,000,000, reduced by... the aggregate amount of eligible gain taken into account by the taxpayer under subsection (a) for prior taxable years... acquired by the taxpayer before, on, or after the applicable date.
The new cap gets reduced the same way. By all prior stock gains. New or old.
This is the timing ratchet. Whichever pile you sell in Year One drags down whatever's left of the other cap in Year Two. The direction you walk through the doors changes what's left on the other side.
The Math
Say you own stock in one company. $10 million in gains on the old shares. $10 million in gains on the new shares. A tender offer lets you take some liquidity now. The main exit comes next year.
Year one: you sell the old stock. Old cap: $10 million. Nothing prior, no reduction. You exclude all of it.
Year two: you sell the new stock. New cap started at $15 million. But now the statute reduces it by the $10 million of eligible gain from a prior taxable year. Your new cap: $5 million. You exclude $5 million of the $10 million new gain. Total excluded across both years: $15 million. You pay tax on $5 million.
Now flip the order.
Year one: you sell the new stock. New cap: $15 million. No prior gains. You exclude all $10 million of new gain.
Year two: you sell the old stock. Old cap started at $10 million. The statute reduces it by gains from all stock in prior years. $10 million of new gains already taken. $10 million minus $10 million. Your old cap is zero. You exclude nothing. Total excluded across both years: $10 million. You pay tax on $10 million.
Same shares. Same company. Same you. Wrong order costs you $5 million in excluded gains. That's roughly $1.6 million in federal tax, closer to $1.9 million with state. Decided by sequencing alone.
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The Locked Door
Sure. The obvious move. Sell the old stock, roll the proceeds into replacement QSBS under Section 1045, and hope the replacement stock inherits the new $15 million cap.
Except a 1045 rollover tacks the holding period from the original stock onto the replacement. That's the whole point of the tack. And practitioners reading the statute expect the pre-OBBBA cap to tack right along with it — meaning your replacement shares stay tied to the old $10 million ceiling. The IRS hasn't issued guidance either way yet. The safe planning assumption is that the escape hatch is welded shut.
The Fine Print
The government built both doors. Wrote the numbers on both. Put the sign on a subsection of a subsection that nobody reads.
Old shares first. Then new. That's the order when the exits span two tax years. The statute says so. It just says it in a place where you have to look.
Right. Reading the fine print. That's the whole game.
