QSBS and Alternative Minimum Tax (AMT): What Founders Need to Know
Does QSBS gain trigger the alternative minimum tax? The answer depends on when your shares were issued and what exclusion percentage applies. For most founders holding post-2010 stock, the answer is no — but the mechanics matter, especially after the OBBBA changes that took effect July 2025.
The short answer by issuance date
| Stock issued | Exclusion tier | AMT preference item? | Practical impact |
|---|---|---|---|
| Before Feb 18, 2009 | 50% exclusion1 | Yes — 7% of excluded gain | Excluded gain partially added back to AMTI; may trigger AMT for high-income sellers |
| Feb 18, 2009 – Sept 27, 2010 | 75% exclusion1 | Yes — 7% of excluded gain | Same as above, but smaller preference because more gain is taxable anyway |
| Sept 28, 2010 – July 4, 2025 | 100% exclusion1 | No | No AMT preference item; gain is fully excluded for both regular tax and AMT purposes |
| After July 4, 2025 (OBBBA)2 | 50% (3-yr hold), 75% (4-yr), or 100% (5-yr+) | No — all tiers | OBBBA amended §57(a)(7) to remove AMT preference for all new-stock exclusion tiers |
How AMT works — and why QSBS matters
The alternative minimum tax runs parallel to the regular income tax system. You compute your tax under regular rules, then recompute it under AMT rules — stripping out or adjusting certain deductions and adding back certain "preference items." You pay whichever is higher.3
AMT preference items are specific items of income or gain that the regular tax system excludes or defers but the AMT system requires you to include. Section 57 of the Internal Revenue Code lists them. Before the One Big Beautiful Bill Act, QSBS gain excluded under the 50% and 75% exclusion tiers under §1202 was a preference item under §57(a)(7) — 7% of the excluded amount was added back to alternative minimum taxable income (AMTI).
The §57(a)(7) preference item, in plain terms
If you had a 50% exclusion on $10 million of QSBS gain:
- Regular taxable gain: $5 million (the 50% not excluded)
- Excluded under §1202: $5 million
- AMT preference item under §57(a)(7): 7% × $5 million = $350,000
- This $350,000 gets added to your AMTI before applying the AMT exemption and rate
The $350,000 preference item does not mean $350,000 of additional tax — it means $350,000 more income is subject to the AMT computation. Whether it actually increases your tax depends on whether your total AMTI (after adding the preference and other adjustments) exceeds the AMT exemption, and whether the resulting AMT exceeds your regular tax.
What OBBBA changed for new stock (after July 4, 2025)
The One Big Beautiful Bill Act signed in July 2025 expanded the Section 1202 exclusion significantly — but one of the least-discussed improvements was the AMT fix. The OBBBA amended IRC §57(a)(7) to remove the AMT preference item for gain excluded under any tier of the new post-enactment QSBS structure.2
This matters most for the new 3-year and 4-year holding tiers. Under pre-OBBBA rules, a 50% exclusion triggered an AMT preference. Under the new structure, even a 50% exclusion (for a 3-year hold on post-July 4, 2025 stock) creates no AMT preference item. Founders who exit at the 3- or 4-year mark no longer have to compute AMT exposure on the excluded portion of their gain.
2026 AMT parameters
Understanding where you stand requires knowing the AMT exemption and phaseout thresholds for the current year.4
| Parameter | Single filer (2026) | Married filing jointly (2026) |
|---|---|---|
| AMT exemption amount | $90,100 | $140,200 |
| Phaseout begins | $500,000 | $1,000,000 |
| Exemption fully phased out | $860,400 | $1,560,800 |
| AMT rate | 26% on first ~$232,000 of AMTI above exemption; 28% above that | |
The OBBBA reverted the AMT exemption phaseout thresholds to lower levels — from the elevated TCJA thresholds ($625,350 single / $1,252,700 MFJ in 2025) back to roughly $500,000 / $1,000,000. This means high-income founders in the $1M–$1.5M AMTI range have a smaller effective exemption in 2026 than they did in 2025 before any QSBS transaction.
Worked examples
Example 1: Post-2010 founder — 100% exclusion, no AMT issue
| Stock issued | 2018 (post-9/27/2010, pre-OBBBA) |
| Total QSBS gain | $8,000,000 |
| Exclusion percentage | 100% |
| Excluded gain | $8,000,000 |
| §57(a)(7) AMT preference item | $0 (100% exclusion → no preference item) |
| Regular federal tax on QSBS gain | $0 |
| AMT impact from QSBS | None |
Other income (salary, interest, ISOs exercised) could still create AMT exposure independent of the QSBS exclusion. Illustrative only.
Example 2: Angel investor with 2009 stock — 75% exclusion, AMT preference applies
| Stock issued | March 2009 (Feb 2009 – Sept 2010 window) |
| Total QSBS gain | $4,000,000 |
| Exclusion percentage | 75% |
| Excluded gain | $3,000,000 |
| Taxable QSBS gain (regular tax) | $1,000,000 at up to 23.8% (LTCG + NIIT) |
| §57(a)(7) AMT preference item | 7% × $3,000,000 = $210,000 |
| $210,000 added to AMTI | May generate AMT if total AMTI exceeds exemption and exceeds regular tax |
Whether AMT actually results depends on the investor's other income, deductions, and remaining exemption. Professional calculation required before filing.
Example 3: Post-OBBBA founder — 3-year hold, 50% exclusion, no AMT
| Stock issued | January 2026 (post-July 4, 2025) |
| Exit date | January 2029 (3-year hold) |
| Total QSBS gain | $12,000,000 (under $15M cap) |
| Exclusion percentage | 50% (3-year hold under OBBBA tiered structure) |
| Excluded gain | $6,000,000 |
| §57(a)(7) AMT preference item | $0 — OBBBA amended §57(a)(7) to remove preference for all post-enactment tiers |
| Regular tax on $6M taxable gain | ~$1.4M at 23.8% (LTCG + NIIT) |
Under pre-OBBBA rules, a 50% exclusion would have generated a $420,000 AMT preference item (7% × $6M). The OBBBA fix eliminated this for new stock. Illustrative only.
AMT can still apply even with clean QSBS exclusion
Even if your QSBS gain itself creates no AMT preference item, you may still face AMT in a liquidity-event year for unrelated reasons. High-income founders commonly encounter several other AMT triggers:
Incentive stock option (ISO) exercises
ISO exercises are a significant and separate AMT issue. When you exercise an ISO, the spread between the exercise price and fair market value is not taxable for regular tax purposes — but it is added to AMTI as an AMT adjustment under IRC §56(b)(3).3 Founders who exercise large ISO positions in the same year as a QSBS sale may see their AMTI jump substantially even if the QSBS exclusion is clean.
State AMT — California as the most common example
California does not conform to the federal QSBS exclusion at all (see state tax guide). It also has its own alternative minimum tax at 7% on California AMTI. The California AMT applies to ISO spreads and other California AMT preferences, and California does not recognize the §1202 exclusion, so QSBS gain is fully taxable in California at the ordinary income rate regardless of the federal exclusion.
High base income pushing exemption into phaseout
Founders earning $1M or more in W-2 or other ordinary income are already inside the AMT exemption phaseout range for 2026 ($1,000,000 MFJ, $500,000 single). Their effective AMT exemption may be significantly reduced before the QSBS transaction even factors in. In the extreme, a founder with $1.56M in AMTI before the QSBS sale has a fully phased-out exemption and pays AMT at the flat rate on every additional dollar of AMTI.
What to model before the transaction closes
A tax projection for a QSBS liquidity event should answer these questions on both the regular and AMT tracks:
- Issuance date of shares: Determines which §1202 exclusion tier applies and whether any §57(a)(7) AMT preference exists.
- ISO exercise plan: If you are exercising ISOs in the same year, model the §56(b)(3) AMT adjustment separately and in combination with the QSBS transaction.
- Base AMTI before the QSBS event: What is your AMTI from salary, business income, and other sources? If you are already in the phaseout range, you may have little effective exemption left.
- State AMT exposure: Does your state have an AMT that treats ISO exercises or other items differently from the federal AMT? California residents need to model this independently of the federal exclusion.
- QSBS exclusion cap: For pre-OBBBA stock, is your gain under the greater of $10M or 10× basis? For post-OBBBA stock, is it under $15M? Gain above the cap is taxable under regular rules and may also affect AMTI.
How a specialist advisor models AMT exposure
AMT modeling for a QSBS exit is not a one-number calculation. A fee-only advisor who works with startup liquidity events builds a dual-track projection: regular tax and AMT in parallel, year by year, incorporating the QSBS exclusion, any ISO exercises planned, other income sources, and state tax exposure.
The goal is to identify, before binding documents are signed, whether AMT is a material factor — and if so, whether timing adjustments to the ISO exercise, gifting plan, or charitable strategy can reduce the exposure. Once the transaction closes, the tax structure is set.
See our guide on what to look for in a QSBS financial advisor.
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Sources
- Cornell Law — 26 U.S. Code § 1202: Partial exclusion for gain from certain small business stock
- Perkins Coie — Significant Changes by the One Big Beautiful Bill Act to the Qualified Small Business Stock Provisions of Section 1202 (2025)
- Cornell Law — 26 U.S. Code § 57: Items of tax preference
- Tax Foundation — 2026 Tax Brackets and Federal Income Tax Rates
- McLane Middleton — OBBBA Changes to the QSBS Regime under Section 1202: A Comprehensive Overview (2025)
AMT exemption amounts and QSBS provisions verified June 2026. Tax law changes frequently; confirm with a qualified tax professional before relying on this information for planning decisions.