Decouples from §1202.
California decouples from §1202: 100% of the QSBS gain is taxable at the state level. The federal exclusion provides no state-level benefit.
State note: Cal. Rev. & Tax. Code §17041 + §17052 — California has not conformed to IRC §1202 since the original conformity sunset. Gain remains taxable at state ordinary-income rates plus the 1% Mental Health Services Tax above $1M.
Decode a California-resident QSBS exit
The decoder loads pre-filled with CA as the state of residence. Change any input — issuance date, gain, basis — to see how this state's conformity rule reshapes the all-in tax.
What a California resident pays
$10,000,000 exit, 5+ year hold, post-OBBBA rules.
Example gain selected deterministically per state to reflect conformity profile; post-OBBBA rules, 5+ year hold, full federal 100% exclusion within the per-issuer cap. State arithmetic uses top marginal rate as a conservative upper bound — bracketed rates apply in practice. Change any input and open in the decoder to model your own facts, then cross-check the underlying citations on sources.
Residency test — which state's rule actually applies
State conformity applies based on the taxpayer's state of residence at the time of sale, not at the time of issuance. If you held QSBS while resident in one state, then established residency in California before the exit, California's rule generally controls the state-tax leg of the transaction.
Part-year residents typically apportion the gain across states by residency days within the tax year. Most states also apply a statutory residence test (often a 183-day physical-presence threshold or a domicile-plus-permanent-place-of-abode rule) that can pull a recent mover back into the prior state's tax base. Establish facts — driver's license, voter registration, primary home, days-in-state log — well before the sale, not after.
The decoder does not model multi-state apportionment or residency challenges. For relocation-timed exits, consult a CPA with state residency expertise; this is the single highest-impact lever in QSBS state planning. Residency at exit also interacts with the federal five-year holding period for state purposes — the federal clock keeps running across state lines, but the state-tax leg only attaches once you cross the state's residency threshold in the year of sale. Because California does not honor the federal exclusion in full, understanding the $10M-or-10×-basis exclusion cap matters most here: the slice the state will tax is exactly the slice the federal cap would otherwise have shielded. Compare California's full-decouple posture against the partial regimes in Pennsylvania and New Jersey.
State-return reporting
Federally, the §1202 exclusion is reported on Form 8949 with adjustment code Q and the unexcluded slice flows to Schedule D with the 28% rate via the Schedule D 28% Rate Gain Worksheet.
The corresponding California state-return line varies by tax year and form revision. Rather than pin a specific line number (which would stale within one filing season), this page directs you to the current California DOR instructions for the year you are filing. If you would like a per-state line-number table maintained at this site, file a request via contact.
Recent California legislative activity affecting QSBS
[VERIFY] No known recent California legislative changes affecting §1202 state conformity as of 2026-05-11. Federal OBBBA (P.L. 119-21 §70431, signed 2025-07-04) modified federal §1202; state-level response varies by jurisdiction. This slot is reviewed during each conformity-manifest refresh.
California QSBS — frequently asked
Does California tax my §1202 QSBS gain at the state level?
California does not conform to IRC §1202 at the state level. 100% of the QSBS gain is taxable as state ordinary income — the federal exclusion provides no state-level benefit. See the state-source pin on this page for the controlling code section.
What is California's top marginal rate on capital gains?
California's top marginal personal income rate on long-term capital gains is approximately 13.30% (reference figure for 2026; consult the state DOR for your exact bracket). Most states tax capital gains at ordinary-income rates.
If I moved to California just before selling QSBS, does the state resident rule apply?
State conformity follows the taxpayer's state of residence at the time of sale, not at issuance. If you established California residency just before selling QSBS, California's rule generally applies — subject to that state's domicile, statutory-residence (days-physical-presence), and part-year apportionment tests. Pre-exit relocation is a common founder planning lever; the rules to clear are state-specific.
Does California honor the federal §1045 rollover?
Because California taxes 100% of the §1202 gain at the state level regardless of federal treatment, federal §1045 rollover may not provide state-level deferral. Not modeled by this calculator; consult a CPA for state-specific §1045 conformity.
Where do I report the §1202 adjustment on the California return?
On the California return, the federal §1202 exclusion is added back so the full gain is taxed at the state level. The exact return line varies by year and form revision; consult the current California DOR instructions — do not assume line numbers carry across years.
Compare California to other states
Same federal exclusion, different state rule. The 50-state grid colors each.