Maximize your QSBS exemption: Trust stacking, packing and rollovers

The qualified small business stock, or QSBS, exclusion is one of the most generous tax benefits available to business owners. While this exemption provides significant tax savings on its own, there are ways to make it even more valuable.

Learn more about the QSBS exemption and explore several strategies that can help eligible shareholders amplify the impact of the QSBS tax treatment, including trust stacking, packing and QSBS rollovers.

What is the QSBS exemption?

Section 1202 of the Internal Revenue Code, commonly known as the QSBS exemption, allows qualifying shareholders to exclude capital gains on qualified shares up to $10 million—or 10 times their cost basis, whichever is greater. To qualify for QSBS tax exemption, both the taxpayer and the stock must meet the QSBS eligibility requirements outlined under IRS Section 1202.

Recent changes

In 2025, the One Big Beautiful Bill Act, or OBBBA, introduced several major changes to the QSBS exemption for shares acquired after July 4, 2025.

• Higher exclusion cap: The maximum exclusion has been raised to $15 million or 10 times cost basis, whichever is greater. Beginning in 2027, this amount will be indexed for inflation.
• Tiered holding periods: Shares sold after 3 years now qualify for a 50% exclusion from federal capital gains tax. At 4 years, the exclusion increases to 75%, and shares held 5 years or more continue to receive the full exclusion.
• Expanded eligibility: The gross-asset threshold has been increased to $75 million, allowing more businesses to qualify. This threshold will also be indexed for inflation.

Learn more about these changes in the 2025 QSBS overhaul episode of our podcast series, Building More Than Business.

While these changes increase the value and accessibility of the QSBS exclusion, there are several advanced strategies that can extend its benefits even further, including trust stacking, packing and a Section 1045 rollover.

QSBS trust stacking

One of the more well-known strategies for maximizing the QSBS exemption is known as trust stacking. This approach spreads the deduction across several taxpayers, multiplying the exclusions available.

How does QSBS trust stacking work?

The QSBS tax exemption applies on a per-taxpayer, per-issuer basis. By gifting shares to other eligible taxpayers—often through non-grantor trusts—shareholders can multiply exclusions. Each trust inherits the original owner's holding period and cost basis, allowing it to claim its own $10 million or $15 million exclusion, depending on the date the shares were issued.

For example, let's say a founder owns QSBS-eligible shares and establishes a non-grantor trust for each of his three children. If each trust holds $8 million in stock at the time of an eligible exit, each could claim its own $8 million exclusion. The founder could also claim his own $10 million exclusion, effectively increasing his total sheltered gain to $34 million.

Depending on the founder's state of residence, it may also be beneficial to situs trusts in states that conform to federal QSBS treatment to avoid state-level capital gains taxes.

QSBS stacking with a SLANT

Under the Section 1202 exclusion, married couples generally share a single $10 million or $15 million exclusion. However, a spousal lifetime access non-grantor trust, or SLANT, can help extend this benefit.

How does a SLANT work for QSBS tax planning?

The shareholder would need to establish a SLANT with their spouse as the primary beneficiary, while also naming another individual—typically an adult child—as both the trustee and remainder beneficiary.

During the spouse's lifetime, distributions from the trust can be made at the trustee's discretion. Any remainder would pass to the child upon the death of the beneficiary spouse.

While this can be a strategic way to maximize QSBS exemption, there are a few tradeoffs:

• The grantor will have no control over the trust.
• The SLANT will count against the grantor's lifetime gift tax.
• Divorce or the death of the spouse can create complications.

This strategy requires working closely with experts who can help founders navigate the complexities involved in such an arrangement.

QSBS packing

Another strategy, known as packing, involves increasing the basis of QSBS-eligible shares to expand the Section 1202 exclusion.

How does QSBS packing work?

QSBS packing can be accomplished in a few ways, such as converting an LLC to a C corporation when the basis is greater than $1 million or contributing property or intellectual property to a company where the value of the contribution is larger than $1 million. By increasing basis, taxpayers can increase the exclusion available under the 10-times-cost-basis rule.

Section 1045 rollovers

A Section 1045 rollover allows taxpayers to defer capital gains taxes by reinvesting proceeds from QSBS stock into another QSBS-qualified issuer within 60 days.

How does a Section 1045 rollover work?

Let's say an individual realizes $13 million in QSBS gains. They can exclude the first $10 million under Section 1202. They could then reinvest the remaining $3 million into another QSBS-eligible company. When the second investment is sold, it may qualify for its own QSBS exclusion.

While a QSBS rollover can be a powerful way to shelter gains above the original cap, it's critical to not only understand the nuances of Section 1045 but also to consider the risks involved with making a new investment.

Important considerations

Entity structure, timing and documentation will all impact QSBS eligibility—so the earlier you seek guidance, the better positioned you'll be to capture the full benefit of this deduction. Engaging the appropriate legal, tax and financial advisors is key. This will ensure adherence to IRS guidelines using a strategy that aligns goals and objectives while avoiding exposure to unnecessary risk.

Key takeaways

• The QSBS exclusion is one of the most robust tax breaks available, especially given recent changes in the law—and there are ways to maximize it even further.
• Three strategies for maximizing QSBS benefits include trust stacking, QSBS packing and Section 1045 rollovers.
• Advanced planning and professional guidance are essential, so it's important to work with qualified advisors to ensure any QSBS strategy aligns with goals.