In January 2025, the Treasury Department’s Office of Tax Analysis (OTA) released data quantifying QSBS claims. This is the first such report to quantify the volume of QSBS claims, and provides insights that can be useful in understanding the impacts of QSBS on economic activity. This study examined individual e-filed tax filings and QSBS claim activity from 2012-2022.
What the OTA Found
The QSBS exclusion increased from when first introduced in 1993, from a 50% exclusion on the first $10 million in capital gains per taxpayer, to a 100% exclusion on those gains for stock issued after September 27, 2010. The OTA study sought to understand the impact from the change in the exclusion level, which first impacted gains realized in late 2015.
Key findings from the report include:
- Over the 10 year period, total gains subject to QSBS amounted to approximately $14.0 billion per year (equating to approximately $3.3B in QSBS tax exclusions on average per year between 2012 and 2022.
- QSBS claims peaked in 2021, with ~$40 billion in capital gains claimed as QSBS, amounting to ~$11.6B in tax exclusions.
- QSBS accounts for about 1.5% of all capital gains on tax returns.
- Roughly 33,000 individual taxpayers claim QSBS each year.
- Most claims are small (half under $2,810), with a few large claims significantly increasing the total.
- While trusts claiming QSBS has increased, gains claimed by trusts account for less than one-sixth of claim activity.
- Only ~25% of QSBS claimants have claimed the exclusion more than once.
Who Gets the QSBS Benefits
The OTA also examined the ~33,000 taxpayers who claim QSBS, noting that those making over $1 million file 26% of claims but take home almost 75% of the total dollars excluded. Given the earnings measurement in this analysis includes the QSBS gains, and nearly all QSBS claimants only claim QSBS once, many of these claimants may have significantly lower incomes in the years before and after the QSBS gain year.
How People Use QSBS
Most QSBS holders sell at the five-year mark, when they qualify for the exclusion. Many others hold longer, but the five-year rule clearly affects selling decisions.
For most people, QSBS isn’t a recurring tax strategy, only 6% claimed QSBS five or more times. This suggests most people experience one big QSBS event rather than using it repeatedly.
Trusts Account for Only a Fraction of QSBS
Trust usage for QSBS has increased since 2012. Complex trusts were nearly nonexistent in 2012-2014, but grew to $6.65 billion (13% of all claims) by 2021. On average, trust claims amounted to $453,950 compared to $362,750 for individual filers—highlighting why more tax planners are incorporating trusts into QSBS strategies.
What It Means for You
This new data comes as lawmakers debate possible changes to Section 1202. Although the report doesn’t lay out policy considerations, it provides insights as to how QSBS has been working in real life.
These findings underscore QSBS’s powerful role in fostering entrepreneurship and driving investment in innovative small businesses. QSBS was created to help drive innovation in America, and as reflected in the OTA findings, given that most QSBS claimants only claim QSBS once, that only about 33,000 taxpayers claim QSBS each year, that the vast majority of claimants are individuals, and that the average tax exclusions total about $3.3B per year, QSBS may be working as planned to provide a “carrot” to drive innovation that only few ever get to chew.
Need help with your QSBS planning? Contact our team at CapGains for advice on your specific situation. You can also learn more about potential QSBS changes in the 2025 tax reform.
This article does not constitute legal or tax advice. Please consult with your legal or tax advisor with respect to your particular circumstance.
