How Investors Multiply Tax-Free Gains With QSBS Stock Stacking
Section 1202 of the U.S. tax code lets founders and early investors exclude up to $15 million in capital gains, tax-free, on the sale of qualifying startup stock held for at least five years.
That’s the law as written, meant to reward people who take real risk on small, unproven companies. But a growing set of wealth advisors have found a way to multiply it.
The technique is called stacking
A founder or investor distributes shares of the same company across multiple trusts, often set up for their children or other family members.
Since the exclusion applies per taxpayer, per company, each trust becomes its own taxpayer with its own $15 million exclusion. A founder who divides ownership among four family trusts can, in theory, shield $75 million or more from federal tax on a single company’s stock, instead of the $15 million a single owner would get.
The U.S. Treasury projects the underlying exclusion will cost the government roughly $67 billion in lost revenue over the next decade, and stacking is a meaningful part of why that number keeps growing. Between 2012 and 2022 alone, the provision let more than $140 billion in gains escape federal tax entirely.
The current administration said it will review stacking specifically, though no rule change finalized.Until then, the gap between what this exclusion meant to do and what sophisticated investors are actually doing with it keeps widening, one family trust at a time.
