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DQE Guide To Qualified Small Business Stock (QSBS) Exclusion

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What is QSBS?

The Qualified Small Business Stock (QSBS) exclusion is a federal tax benefit for startup shareholders, including Dragon Q Energy investors, that allows significant capital gains to be excluded from federal taxation if specific requirements are met. The latest updates expand these benefits, making QSBS even more valuable to eligible investors.

QSBS is a provision in Section 1202 of the Internal Revenue Code which allows investors, founders, and employees who acquire original shares in a qualifying U.S. C corporation to potentially exclude up to $15 million in gains—or 10 times the investment basis, whichever is greater—from federal income tax upon a sale, as long as shares are held for at least a defined period. These limits are indexed for inflation after 2026.[1][2][3][4][5][6][7]


QSBS Benefits

  • Federal Capital Gains Exclusion: Up to $15 million (or 10x basis) in gains from qualified stock sold after July 4, 2025, can be excluded if shares are held for 5 years. The exclusion is scaled: 50% for 3 years, 75% for 4 years, and 100% for 5 years.[2][6][7][8]

  • Encourages Startup Investment: Makes early-stage investing and company growth more attractive by increasing net proceeds from successful exits.[5][6]

  • Higher Asset Limits: Now covers companies with up to $75 million in assets (was $50 million), including more scale-ups and innovative startups.[3][6][5]


QSBS Qualifications

Company Requirements

  • Must be a U.S. C corporation at stock issuance.

  • Aggregate gross assets must not exceed $75 million at issuance and after.

  • At least 80% of assets must be used in an active qualified trade or business—technology, manufacturing, etc. Certain sectors (consulting, finance, health, law) are excluded.[6][7]

  • Company must not own substantial passive investments or property.


Investor Requirements

  • Shares must be acquired directly from the company at original issuance.

  • Shares must be held for at least 5 years for max exclusion, or 3–4 years for partial.

  • Investor must properly document holding and acquisition.


How Dragon Q Energy Qualifies

Dragon Q Energy is a U.S. C corporation engaged in battery technology and energy storage—a qualifying trade. It maintains asset levels below the $75 million threshold, and issues shares directly to investors in compliance with QSBS documentation and IRS requirements. All necessary QSBS attestations and eligibility records are maintained, ensuring shareholders may claim the exclusion, subject to holding period and IRS confirmation.[3][5][6][7]


Disclosures and Disclaimers

This document is provided for informational purposes and does not constitute tax, legal, financial, or investment advice. Individual eligibility must be confirmed with professional advisors and the IRS. Dragon Q Energy does not guarantee an investor's QSBS benefit; eligibility depends on one’s personal tax situation, investment documentation, and compliance with all applicable laws. Investors should consult qualified professionals before making any investment decisions or tax filings.[3][6][7]


Changes described herein apply only to shares issued after July 4, 2025. Stocks acquired before this date are subject to previous QSBS rules and limitations





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