Methodology

Methodology
and validation.

Every output the decoder produces is reproducible from the closed-form formulas on this page. The validation harness reproduces six fixtures to the cent on every release.

Last updated: May 11, 2026

Inputs

The decoder takes six inputs per issuance:

Issuance date (ISO yyyy-mm-dd)
Exit date (ISO yyyy-mm-dd)
Gross-asset value at issuance (USD)
Basis at issuance (USD)
Realized gain at exit (USD; negative = loss path)
State of residence at exit (2-letter code)

Rule-set

Rule-set selection

ruleSet = (issuanceDate > "2025-07-04") ? "post-OBBBA" : "pre-OBBBA"

The boundary is strict — stock issued on 2025-07-04 itself falls under pre-OBBBA per the statutory effective-date language ("issued after the date of enactment").

Hold tier

years = (exitDate − issuanceDate) / 365.25

Pre-OBBBA:

years ≥ 5 → 100% exclusion
years < 5 → 0% exclusion (consider §1045 rollover)

Post-OBBBA:

years ≥ 5 → 100%
4 ≤ years < 5 → 75%
3 ≤ years < 4 → 50%
years < 3 → 0% (§1045 candidate)

Issuer qualification

issuerQualifies = grossAssetAtIssuance ≤ ceiling

Pre-OBBBA ceiling = $50,000,000
Post-OBBBA ceiling = $75,000,000

If false, no §1202 exclusion is available regardless of hold period. The result card shows the "issuer-disqualified" verdict.

Per-issuer cap

perIssuerCap = max(statutoryFixedCap, 10 × basis)

Pre-OBBBA fixed cap = $10,000,000
Post-OBBBA fixed cap = $15,000,000 (indexed for inflation annually starting 2027 — current implementation uses base $15M)

Eligible gain

eligibleGain = min(gain, perIssuerCap)

overCapSlice = max(0, gain − eligibleGain)

Federal exclusion

Federal exclusion + tax

federalExclusion = eligibleGain × exclusionPct

partialUnexcluded = eligibleGain − federalExclusion

federalUnexcludedGain = partialUnexcluded + overCapSlice

federalTaxOnUnexcluded = (partialUnexcluded × 0.28) + (overCapSlice × (0.20 + 0.038))

The 28% rate applies only to the partial-exclusion slice of the in-cap gain (per §1202(a)). The over-cap slice is taxed at the baseline LTCG rate (20%) plus NIIT (3.8%) — not at 28%.

State overlay

For each state, conformity ∈ { full, partial, decouple, no-tax }.

State add-back of the federal exclusion:

full → 0 (state honors federal 1:1)
partial → 0.5 × federalExclusion (PA/NJ approximation; per-state /states/[code] documents the exact rule)
decouple → 1.0 × federalExclusion (state taxes 100% of gain)
no-tax → 0 and topMarginalRate = 0

stateTaxable = federalUnexcludedGain + stateAddBack

stateTax = stateTaxable × topMarginalRate

Combined

combinedTax = federalTaxOnUnexcluded + stateTax

effectiveRate = combinedTax / gain

Portfolio

Portfolio aggregation

For multi-issuance portfolios, each row is computed independently with its own rule set, state, and hold tier. The aggregate is the simple sum across rows. effectiveRate at the portfolio level = combinedTax / sum(positive gains).

Validation harness

The decoder engine ships with a vitest test suite that reproduces six closed-form fixtures to the cent. The suite runs on every build via npm run test. The fixtures include:

Pre-OBBBA, 5+ year hold, $8M gain in CA — full federal exclusion, 100% state add-back.
Post-OBBBA, 4-year hold, $5M gain in TX — 75% tier, 28% on unexcluded, no state tax.
Post-OBBBA, 5+ year hold, $30M gain in NY — capped at $15M, over-cap slice at baseline LTCG.
High-basis founder: 10× basis ($30M) beats $15M fixed cap.
Issuer disqualified: $90M gross assets exceeds $75M ceiling.
Loss position routed to §1244.

What the decoder does not model

AMT interaction (§1202 has a permanent AMT-preference removal post-TCJA — not modeled because no preference applies).
State-specific QSBS overlays beyond conformity (e.g., Colorado's in-state small-business subtraction, Ohio's small-business-investor deduction).
Multi-jurisdiction state-residency questions (taxpayer who moved states mid-hold).
Partnership-level pass-through with §1202(g) holder-by-holder allocations.
Gift-transfer attribution (§1202(h)(2) tacked holding period for gifts).
Trust ownership and the §1202 grantor-trust rules.
Prior §1045 rollover history affecting current cap.
NIIT-related thresholds, MFJ split brackets, and additional Medicare tax interactions.

These are out-of-scope for the calculator-first decoder. Use a CPA or Enrolled Agent for any of them.