For federal income tax purposes, gain on the sale of qualified small business stock (QSBS)—also called Section 1202 stock—may be fully excludable (tax free). And under recent law changes, there can be a partial exclusion for stock that’s been held less than 5 years. But some states have decoupled from federal rules. For example, no exclusion is allowed in Alabama, California, Mississippi, and Pennsylvania. Oregon decoupled in a measure signed by the governor on April 9, 2026, which is effective for stock sales in 2026 and beyond. Maine decoupled on April 10, 2026. New York had proposed decoupling, but the measure was withdrawn (the exclusion continues to apply for NY income tax purposes). And New Jersey, which had previously decoupled, now conforms to the federal rule starting this year. More details about QSBSs are in our blog. #IdeaoftheDay
