A federal QSBS exclusion does not settle your state tax bill. Some states follow Section 1202, some keep an older version, and others require you to add federally excluded gain back to taxable income. This guide covers all 50 states and the District of Columbia, including enacted changes that affect 2026 and later exits.
State-rule review: September 21, 2026. Scope: a resident individual selling investment stock. Corporate, trust, local-tax and nonresident-source rules can produce different results.
The biggest recent changes: Illinois, Oregon and Vermont add back the federal exclusion beginning with the specified 2026 tax years. New Jersey allows it beginning with 2026 tax years. Maine distinguishes stock first acquired before and after July 4, 2025. Rhode Island’s enacted addback begins with 2027 tax years. D.C. has a separate emergency-law transition. The sources and exact dates appear below.
Start with the federal rule and the stock’s dates
Qualifying stock acquired after July 4, 2025 can receive a 50% federal exclusion after three years, 75% after four, and 100% after five. The new $15 million per-issuer dollar limit caps eligible gain before applying that percentage; the alternative 10-times-basis limit and prior-gain coordination also matter. The $75 million gross-assets threshold applies to stock issued after July 4, 2025. Both new dollar thresholds are indexed after 2026. IRC §1202.
Earlier stock generally requires more than five years and uses the $10 million dollar limit or 10-times-basis alternative. Eligible stock acquired after September 27, 2010 and on or before July 4, 2025 generally receives a 100% exclusion; older acquisition dates may carry lower percentages.
For newly purchased post-July 4, 2025 stock, the three-year tier first becomes available in 2028. Holding-period tacking requires separate analysis. A state’s current adoption of the expansion does not guarantee that its law will remain unchanged when you sell.
How to read the state table
- Generally follows federal: Our reading of the state’s adopted federal tax base and modifications is that the federal §1202 exclusion carries through. These entries are statutory-conformity conclusions, rather than a representation that each agency has issued a QSBS-specific ruling.
- Older rules: The state has adopted §1202 without the 2025 expansion. A post-July 4, 2025 investment may still qualify under that state’s older requirements after the required holding period; do not automatically use the federal three-year tier, $15 million limit or $75 million assets test.
- Added back: The state includes an amount that was excluded federally. The amount and effective date depend on the particular statute.
- No individual income tax: This describes the resident individual tax on investment-stock gain. It does not resolve tax owed to a former home state, a source state, or by a separate business entity.
QSBS conformity: all 50 states and D.C.
The table summarizes 2026 treatment and separately identifies enacted future changes. “Older rules” does not mean every older stock lot qualifies. On a small screen, scroll the table horizontally to read the authority column.
| Jurisdiction | Older federal QSBS rules | 2025 expansion and timing | Authority |
|---|---|---|---|
| Alabama | No federal §1202 exclusion. | The 2025 expansion is not adopted. | Ala. Code §40-18-14; DOR federal-law analysis, p.20 |
| Alaska | No general individual income tax. | A §1202 exclusion is not needed to avoid a resident individual income tax on investment-stock gain. | Legislative fiscal history |
| Arizona | Generally follows federal. | HB 4168 adopts the January 1, 2026 Code, including the expansion. The law’s general effective date was September 12, 2026; conformity applies retroactively to 2025 tax years (the statute’s tax-year applicability is distinct from the September 12, 2026 general effective date). Arizona row verified September 15, 2026 against enacted HB 4168. | Enacted HB 4168 summary |
| Arkansas | Older federal rules adopted. | §1202 is adopted as of January 1, 2017; the 2025 expansion is not included. Arkansas also has separate net-capital-gain exclusions. | Ark. Code §26-51-815 |
| California | No federal §1202 exclusion. | California also does not follow the federal §1045 rollover. Federally excluded QSBS gain must be included in the California calculation. | FTB Schedule D instructions |
| Colorado | Generally follows federal. | Federal taxable income is the starting point; the federal QSBS exclusion generally carries through, including the 2025 expansion. | C.R.S. §39-22-104 |
| Connecticut | Generally follows federal. | Federal adjusted gross income is the starting point; the federal exclusion generally carries through, including the 2025 expansion. | Conn. Gen. Stat. §12-701 |
| Delaware | Generally follows federal. | Rolling federal-AGI conformity generally carries through the 2025 expansion. | 30 Del. C. §§1105–1106 |
| District of Columbia | 2026 exclusion restored under the August emergency budget legislation; see the transition note below. | The new addback is limited to the specified 2025 tax year and sales on or after December 3, 2025. The emergency text does not impose a 2026 §1202 addback or freeze §1202 to its older version. Emergency expiration and permanent-law review require monitoring. | B26-0724, §§7112–7113, 9003; Permanent counterpart B26-0661 |
| Florida | No individual income tax. | No resident individual income tax on investment-stock gain, whether or not it qualifies under §1202. | Florida DOR FAQ |
| Georgia | Generally follows federal. | HB 1199 adopts the January 1, 2026 Code for tax years beginning on or after January 1, 2025, including the QSBS expansion. | Signed HB 1199, §§1 and 4 |
| Hawaii | Limited to 50% under the older rules. | Act 35 retains §1202 as of December 31, 2024 and excludes its older 75% and 100% provisions. The 2025 expansion is not adopted. Applies to tax years beginning after December 31, 2025. | HB 2329 CD1, §4 (Act 35); Enactment record |
| Idaho | Generally follows federal. | The January 1, 2026 Code date includes the 2025 QSBS expansion. | Idaho Code §63-3004 |
| Illinois | Federal exclusion added back for tax years ending on or after December 31, 2026. | The addback reaches the federal §1202 exclusion, including gains on older stock; it is not limited to the expansion. | IDOR FY 2027-01; P.A. 104-0468 (35 ILCS 5/203) |
| Indiana | Generally follows federal. | SEA 243 updates the Code date to January 1, 2026. Its conformity and modification provisions retain the QSBS expansion. | SEA 243, §§5–6; Official bill record |
| Iowa | Generally follows federal. | Rolling Code conformity for tax years beginning in 2020 and later generally carries through the 2025 expansion. | Iowa Code §422.3; §422.7 adjustments |
| Kansas | Generally follows federal. | Federal AGI, with Kansas modifications, generally preserves the exclusion and the 2025 expansion. | K.S.A. §79-32,117 |
| Kentucky | Generally follows federal. | HB 757 adopts the December 31, 2025 Code for tax years beginning on or after January 1, 2026, including the QSBS expansion. | 2026 Acts, ch.161 |
| Louisiana | Generally follows federal. | Federal AGI, with Louisiana modifications, generally preserves the exclusion and the 2025 expansion. | La. R.S. §47:293 |
| Maine | Federal exclusion retained for stock first acquired on or before July 4, 2025. | New §5122(1)(UU) adds back the §1202(a)(1) exclusion for stock first acquired after July 4, 2025 and held at least three years. This is a stock-vintage split, not simply a smaller state dollar limit. | Maine 2026 changes, p.4 |
| Maryland | Generally follows federal. | Federal AGI conformity generally preserves the 2025 expansion. The 2026 proposal to add back QSBS gains did not become law; do not treat the proposal as an enacted addback. | Md. Tax-General §10-203; Comptroller conformity alert; HB 801 status |
| Massachusetts | Older federal exclusion adopted, including 100% for eligible modern stock. | The personal-income-tax Code date is January 1, 2024 (G.L. c. 62, §1(c)). TIR 26-4 identifies the 2025 QSBS expansion (Act §70431) as nonconforming. | Massachusetts TIR 26-4 |
| Michigan | Generally follows federal. | Taxpayers may use the Code in effect for the tax year. The specific 2025 business-expense decoupling does not add back §1202 gains; the QSBS expansion generally remains available. | MCL §206.12; Treasury decoupling notice |
| Minnesota | Generally follows federal. | 2026 chapter 128 updates the Code date to May 1, 2026, with federal effective dates. That includes the 2025 QSBS expansion. | 2026 Session Law, ch.128; Revenue law changes |
| Mississippi | No federal §1202 exclusion. | The 2025 expansion is not adopted. A separate exemption can apply to qualifying stock in Mississippi domestic corporations held more than one year; statutory conditions and loss offsets matter. | Miss. Code §27-7-9(f)(10); §27-7-15 income base |
| Missouri | Federal exclusion generally carries through; broader relief is also available. | For individuals, a separate subtraction for 100% of federally reported capital gains begins with 2025 tax years. A taxable federal remainder may therefore receive Missouri relief without qualifying under §1202, subject to the subtraction’s rules. | Missouri DOR capital-gains FAQ |
| Montana | Generally follows federal. | Current-Code conformity and the federal taxable-income starting point generally preserve the 2025 expansion. | MCA §15-30-2101; §15-30-2120 |
| Nebraska | Generally follows federal. | Rolling federal conformity generally carries through the exclusion and the 2025 expansion. | Neb. Rev. Stat. §77-2714; §77-2716 modifications |
| Nevada | No individual income tax. | No resident individual income tax on investment-stock gain, whether or not it qualifies under §1202. | Nevada Department of Taxation |
| New Hampshire | No general individual income tax or individual capital-gains tax. | The separate interest-and-dividends tax was repealed for periods beginning January 1, 2025. QSBS conformity does not determine the resident investment-stock result. | New Hampshire DOR repeal notice |
| New Jersey | Exclusion allowed starting with 2026 tax years. | P.L. 2025, c.67 allows qualifying gains exempt federally under §1202 for tax years beginning on or after January 1, 2026; the provision is not frozen to the older federal limits. | P.L. 2025, c.67 (N.J.S.A. 54A:6-34) |
| New Mexico | Generally follows federal. | The federal-AGI starting point generally preserves the exclusion and the 2025 expansion. | N.M. Stat. §7-2-2 |
| New York | Generally follows federal. | The federal-AGI starting point generally preserves the exclusion and the 2025 expansion. Apply enacted §612 modifications, rather than proposed budget addbacks. | N.Y. Tax Law §612 |
| North Carolina | Generally follows federal. | S.L. 2026-31 updates the Code date to July 5, 2025. The QSBS expansion is included; the law’s separate business-tax adjustments do not create a §1202 addback. | NCDOR July 23, 2026 notice |
| North Dakota | Generally follows federal. | Current-Code conformity and the federal taxable-income base generally preserve the 2025 expansion. | N.D.C.C. ch.57-38 |
| Ohio | Generally follows federal. | The conformity update effective March 5, 2026 includes the 2025 expansion. Apply the Ohio AGI modifications separately. | Ohio Rev. Code §5701.11; §5747.01 |
| Oklahoma | Generally follows federal. | The federal-AGI starting point generally preserves the exclusion and the 2025 expansion. Oklahoma’s separate capital-gain deduction has additional conditions. | 68 O.S. §2353; §2358 adjustments |
| Oregon | Federal exclusion added back starting with 2026 tax years. | SB 1507 applies to tax years beginning on or after January 1, 2026. The addback reaches older QSBS as well as the expansion. | Enrolled SB 1507, §§5 and 10 |
| Pennsylvania | No federal §1202 exclusion. | Pennsylvania computes taxable net gains under its own personal-income-tax rules; the federal exclusion and 2025 expansion do not carry through. | Pennsylvania PIT net-gains guide |
| Rhode Island | Federal exclusion generally retained for 2026; added back from 2027. | Enacted H 7127 adds back the amount excluded under §1202 for tax years beginning on or after January 1, 2027. It reaches the whole exclusion, including older stock, so the new federal holding-period tiers do not preserve a state exclusion for later exits. | H 7127, Article 6, §5; Division of Taxation 2026 summary |
| South Carolina | Older federal rules adopted. | The published §12-6-40 uses the December 31, 2024 Code. That does not include the 2025 QSBS expansion. | S.C. Code §§12-6-40, 12-6-50 |
| South Dakota | No individual income tax. | No resident individual income tax on investment-stock gain, whether or not it qualifies under §1202. | South Dakota DOR |
| Tennessee | No general individual income tax. | The Hall income tax was repealed for tax periods beginning January 1, 2021. QSBS conformity does not determine the resident investment-stock result. | Tennessee DOR Hall tax guidance |
| Texas | No individual income tax. | No resident individual income tax on investment-stock gain. Entity-level franchise-tax questions are separate. | Texas business and tax overview |
| Utah | Generally follows federal. | The Code in effect for the taxable year and federal-AGI starting point generally preserve the 2025 expansion. | Utah Code §59-10-103 |
| Vermont | Federal exclusion added back starting with 2026 tax years. | Act 164 applies the addback for tax years beginning on or after January 1, 2026. Separate Vermont capital-gain relief requires its own analysis. | Act 164, §55a and effective dates |
| Virginia | Generally follows federal. | HB 29 adopts the December 31, 2025 Code. The QSBS expansion is included; the separate depreciation, expensing and research adjustments do not create a §1202 addback. | Virginia Tax Bulletin 26-1 |
| Washington | 2026 sale: federally excluded §1202 gain stays outside the ch. 82.87 capital-gains-tax base; no general individual income tax yet. | Capital-gains tax starts from federal net long-term capital gain, so the 2025 exclusion expansion generally carries through (WAC 458-20-301). 2026 bills SB 6229 and HB 2292 that would have added excluded QSBS gain back to that base did not pass. Beginning 2028, the enacted 9.9% income tax starts from federal AGI with no QSBS addback under current law (RCW 82A.04.210); any federally taxable remainder needs a coordinated state calculation. | WAC 458-20-301(2); RCW 82A.04.210; income-tax QSBS analysis |
| West Virginia | Generally follows federal. | §11-21-9 adopts federal amendments made before January 1, 2026, including the 2025 QSBS expansion. | W. Va. Code §11-21-9 |
| Wisconsin | Older federal exclusion adopted, including 100% for eligible modern stock. | The December 31, 2022 Code date excludes the 2025 expansion. Do not confuse that limitation with older summaries claiming Wisconsin allows only a 50% or 60% QSBS exclusion. | Wisconsin Tax Bulletin 234, p.2; DOR QSBS explanation |
| Wyoming | No individual income tax. | No resident individual income tax on investment-stock gain, whether or not it qualifies under §1202. | Wyoming state overview |
This post is part of our Complete Guide to QSBS and Section 1202.
Recent changes to check before an exit
Illinois, Oregon and Vermont: an older investment is not grandfathered just because it predates the new law
Illinois uses tax years ending on or after December 31, 2026. Oregon and Vermont use tax years beginning on or after January 1, 2026. For a calendar-year individual, all three changes reach 2026 gains. The addbacks are not confined to the extra benefits Congress added in 2025. Check estimated payments as well as the eventual return; Illinois’s bulletin addresses current-year payment consequences. Sources: Illinois FY 2027-01; Oregon SB 1507; Vermont Act 164.
Maine: the acquisition date changes the state result
Maine’s 2026 legislation requires noncorporate taxpayers to add back the gain excluded under §1202(a)(1) on stock first acquired after July 4, 2025 and held at least three years. A five-year federal 100% exclusion on that newer stock does not escape the addback merely because it also satisfies a five-year holding period. The new provision does not impose that same addback on the earlier stock category. Preserve records identifying each lot and review tacking or rollover facts separately. Maine Revenue Services’ 2026 legislative summary, page 4.
Rhode Island: plan for the enacted 2027 addback
Rhode Island’s new §44-30-12(b)(12) adds back the amount excluded under §1202 for tax years beginning on or after January 1, 2027. Its text reaches the full federal exclusion, including otherwise qualifying older stock. A founder expecting a 2028 or later exit should not rely on a table that simply labels Rhode Island “conforming” based on its 2026 treatment. Enacted H 7127, Article 6, §5; Division of Taxation’s July 22, 2026 summary.
D.C.: read the August emergency act alongside the Code
The online Code’s earlier temporary provision shows a broad §1202 addback. Newer legislation changes the analysis. The Fiscal Year 2027 Budget Support Emergency Act, B26-0724 (Act A26-0416), became effective in August 2026. Section 7112(c) limits the QSBS addback to the specified 2025 tax year and sales or exchanges occurring on or after December 3, 2025. Section 7113 gives this subtitle its own January 1, 2025 applicability date; the act’s general October 1, 2026 applicability date does not control this subtitle. Emergency act, §§7112–7113 and 9001–9003.
On that text, the QSBS-specific addback does not apply to 2026 tax years, and the act does not freeze §1202 to its pre-2025 version. This is our reading of the legislation together with D.C.’s federal-Code definition. The emergency act expires November 11, 2026; the permanent counterpart, Act A26-0418, remains subject to congressional review as of this guide’s review date. Confirm the legislation in force before a transaction or return filing. D.C. Code §47-1801.04(28); emergency act record; permanent act record.
Hawaii, Massachusetts and Wisconsin need different calculations
Hawaii retains a 50% exclusion under an older version of §1202. Massachusetts and Wisconsin generally preserve the older federal exclusion, including 100% for eligible modern stock, but have not adopted the 2025 expansion. Do not label all three states “partial” and apply the same percentage. Arkansas and South Carolina also require an older-Code calculation. Each state’s adopted dates and sources appear in the table.
Separate capital-gain relief can change the bill
Missouri’s individual capital-gains subtraction is broader than QSBS. Arkansas has separate net-capital-gain exclusions, and Mississippi has a separate exemption for qualifying domestic-company stock. Federal nonconformity therefore does not establish that every dollar of gain is taxed. Conversely, a state’s conformity does not eliminate tax on gain that exceeds the applicable §1202 limit or otherwise fails to qualify. See the statutes and agency guidance linked in those rows.
Example: a four-year federal exclusion still needs a state calculation
A founder acquires eligible stock on August 1, 2025 and sells it on August 2, 2029 for a $15 million gain. Assuming all requirements and applicable limits are satisfied, a 75% exclusion would remove $11.25 million from federal income, leaving $3.75 million taxable. The taxable portion is subject to the applicable federal rate rules; 28% is a maximum rate for this category, not a mandatory flat rate, and the net investment income tax may also apply. IRC §1(h); IRC §1411.
Under a state law that still fully follows the applicable federal exclusion at the time of sale, the excluded $11.25 million generally stays out of the state’s starting tax base. An older-Code state needs a separate qualification and holding-period calculation. A full-addback state includes the excluded amount again, subject to its other rules. Missouri’s separate subtraction may address the federally taxable remainder. The state law in force for 2029 will control the actual result.
Washington requires particular care: for a 2026 sale, federally excluded gain stays outside the capital-gains-tax base, and there is not yet a general individual income tax. Beginning 2028, the enacted income tax starts from federal AGI with no QSBS addback under current law; any taxable remainder still needs the applicable year’s deductions, exemptions and rates. Use the Washington capital gains tax guide and the Washington income-tax QSBS analysis.
Pre-exit planning: what to document
- Build a stock-lot schedule. Record issuance and acquisition dates, basis, holding periods, transfers, redemptions, and prior exclusions from the same issuer. Match each lot to the federal and state rules.
- Model the actual sale year. An enacted addback can affect older investments and gains earlier in the same tax year. Separate enacted law from pending bills, and check estimated-payment consequences.
- Analyze residence and source before a move. A new address does not settle domicile, statutory residency, compensation sourcing or business-income rules. Investment-stock gain should not be divided mechanically among states by years of ownership. California does not have a general ten-year tax on post-move stock appreciation; its guidance generally sources investment-intangible gains to residence at sale, with exceptions. FTB Publication 1100.
- Review §1045 separately. A state that follows §1202 does not necessarily follow every rollover rule. A move before later recognition does not by itself establish that the original state loses taxing rights. Review both stock dispositions and the relevant states’ basis and deferral rules.
- Calculate the full return. A top marginal rate multiplied by gross gain is not a return calculation. Account for capital losses, separate exclusions, brackets, deductions, credits, local taxes and each payment’s character.
If you are forming a company, exercising options or preparing for an exit, resolve QSBS eligibility and the state-law calculation before the transaction. For help applying the rules to your stock, use the consultation link below.
Need a letter, not just a checklist?
If you need to engage tax counsel to prepare a QSBS attestation letter drafted and signed by counsel — covering the gross-assets test, active-business analysis, redemption history, and OBBBA tranche bifurcation — we offer flat-fee engagements after a short intake call.
Related reading:
To learn how to multiply your QSBS exclusion through stacking strategies, see QSBS Stacking: How to Multiply Your Section 1202 Exclusion
For details on Oregon state tax decoupling rules, see Oregon Tax Decoupling Trap
For information on Washington new income tax, see Washington Income Tax
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The Definitive Guide to Qualified Small Business Stock
This page covers QSBS conformity in all 50 states and D.C., including recent changes. For qualification, exclusion limits, formation choices and exit planning, see the working QSBS guide linked below.
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For a comprehensive comparison of state taxes across 11 states — including income tax, capital gains, QSBS conformity, and estate tax — see our State Tax Comparison for Startup Founders.
This post is for educational purposes only and is not legal or tax advice. Consult a qualified attorney about your specific situation.
