QSBS tacking, stacking, and basis loading: Advanced planning concepts for founders and investors

The passing of the One Big Beautiful Bill Act (OBBBA) materially expanded the tax benefit for investors who own or plan to invest in companies eligible Qualified Small Business Stock (QSBS) treatment under Section 1202. The OBBBA introduced a tiered exclusion schedule beginning at year three and increases the flat gain cap from $10 million to $15 million per taxpayer. These changes broadly alter how equity holders approach exits, gifting, and long-term tax strategy.

Advanced planning techniques can still help maximize QSBS benefits. But with OBBBA’s new thresholds and timing rules, it’s worth reassessing how these strategies fit into your broader equity plan:

• Tacking allows taxpayers to preserve the QSBS holding period when stock is transferred through gifts, trust funding, or entity conversions, enabling recipients to benefit from the original acquisition date.
• Stacking enables multiple taxpayers (such as trusts) to each claim a separate QSBS exclusion, multiplying the potential capital gain exclusion across an estate plan.
• Basis Loading increases the taxpayer’s cost basis in QSBS-eligible stock, which can raise the exclusion cap under Section 1202. Taxpayers may exclude from gain recognition the greater of $15 million or 10x their cost basis. For example, if a taxpayer has $10 million of basis in QSBS, they may exclude up to $100 million of gain. Basis can be increased through capital contributions, fair market value purchases, or convertible instruments.

This article breaks down how these strategies, layered onto OBBBA’s new rules, can help founders and investors maximize exclusions, optimize exits, and future-proof equity structures.

Tacking: Preserving the holding period

What it is:

Tacking allows the QSBS holding period to carry over when stock is transferred. Under the One Big Beautiful Bill Act (OBBBA), this becomes even more valuable: for QSBS issued after July 4th, 2025, there is a new tiered exclusion schedule (50% at 3 years, 75% at 4, 100% at 5) allowing partial tax benefits to be accessed sooner. Accelerating the timeline to receive QSBS benefits will provide increased optionality and planning opportunity that can impact reinvestment opportunities, liquidity and equity compensation, estate planning, entity restructuring, or M&A scenarios.

How it works:

• Gifts to family or trusts: The recipient inherits the original acquisition date, preserving QSBS eligibility.
• Entity conversions: Changing from an LLC to a C-Corp can preserve the holding period if structured properly.
• M&A rollovers: Equity received in a qualifying merger may retain QSBS status, but only if the transaction meets strict continuity rules. Under Section 1045, taxpayers may roll over QSBS gain into replacement QSBS stock, preserving eligibility if the reinvestment occurs within 60 days and fulfills other statutory requirements.

What to watch:

• Documentation: You must track original acquisition dates and confirm QSBS eligibility at each stage.
• Disqualifying transfers: Sales or exchanges that break continuity can reset the clock or void QSBS treatment.

Planning tip:

Before gifting, converting, or rolling equity, confirm the transaction won’t disrupt QSBS status. A quick review with tax counsel can preserve material tax savings.

Stacking: Multiplying the exclusion

What it is:

Stacking allows multiple taxpayers to each claim a separate QSBS exclusion, potentially multiplying the total tax-free gain well beyond the $15M cap. This strategy is especially relevant for founders, early employees, and investors with significant QSBS exposure who want to spread tax benefits across family members or estate planning vehicles.

When it applies:

• During estate planning, when transferring QSBS to trusts or heirs.
• In family wealth strategies, where spouses or children hold QSBS directly.
• When preparing for a liquidity event and looking to maximize exclusions across multiple entities or individuals.

How it works:

• Direct ownership exclusions: Individuals who hold QSBS directly may each qualify for a separate exclusion, provided the shares meet eligibility requirements and are not jointly owned. This can be useful in family planning scenarios where adult children or other relatives hold QSBS in their own names.
• Trust stacking: Multiple non-grantor trusts can qualify separately, each treated as a distinct taxpayer. This strategy is commonly used where QSBS exposure is in excess of the individual exclusion limit and the taxpayer still has much of their lifetime estate and gift tax exclusion remaining.

What to watch:

• IRS scrutiny: The IRS closely examines trust structures to prevent abuse. “Nominee” arrangements or trusts lacking economic substance may be challenged.
• Grantor vs. non-grantor: Only non-grantor trusts qualify for separate exclusions. Grantor trusts are treated as owned by the grantor, so stacking doesn’t apply. Attribution rules can also trip up eligibility if not carefully managed.

Planning tip:

Stacking works best when ownership is clearly documented and aligned with tax treatment. Coordinate early with legal and tax advisors, especially when setting up trusts or transferring shares. Missteps can lead to disqualification or audit risk.

Basis loading: Boosting the 10x cap

What it is:

Under Section 1202, taxpayers may exclude the greater of $15 million or ten times the stock’s basis in QSBS gain. This structure means that increasing basis through capital contributions, fair market value purchases, or convertible instruments can significantly expand the exclusion ceiling. For example, a $10 million basis could support a $100 million exclusion. For investors who acquire QSBS at higher valuations or contribute capital after formation, basis loading may offer a more favorable outcome than relying on the flat $15 million cap.

How it works:

• Capital contributions: Adding capital to the company post-formation can increase basis if structured properly.
• Convertible instruments: Instruments like Simple Agreements for Future Equity (SAFEs), convertible notes, and non-qualified stock options may qualify as QSBS if they convert into stock that meets the eligibility criteria. Timing, terms, and documentation are critical.

What to watch:

• Step transaction risk: IRS may collapse multi-step transactions if they appear pre-arranged to inflate basis.
• Substance over form: Contributions must reflect genuine economic investment. Transactions lacking commercial substance or executed solely for tax positioning may be challenged.

Planning tip:

Basis loading works best when done early and intentionally. Coordinate with tax counsel to ensure instruments and contributions are properly documented and defensible. A misstep here can reduce or eliminate the QSBS benefit. Increasing the gross asset test from $50M to $75M not only increases the QSBS eligibility for more companies, but also provides more runway for basis loading to be accomplished before reaching the gross asset limitation.

Next steps

As QSBS planning evolves, it’s important to consider how federal and state-level rules interact, especially when structuring trusts or preparing for liquidity.

Many states either conform to Section 1202 or do not impose state-level capital gains or income taxes. However, a handful of states diverge from federal treatment, and some apply partial conformity or have additional considerations. These differences can significantly impact planning outcomes.

With OBBBA’s expanded regime, now is a good time to revisit ownership structures, trust arrangements, and equity instruments across portfolios. Enhancing tax efficiency through tacking, stacking or basis loading requires thoughtful coordination and clear documentation.

Coordinating with a Citizens Private Wealth advisor can help ensure your QSBS strategy is both optimized and defensible, especially amid shifting policies and state-level nuances.