In a landmark move designed to bolster its innovation economy, New Jersey has officially joined the ranks of states conforming to the federal Qualified Small Business Stock (QSBS) exclusion under Internal Revenue Code Section 1202. Governor Phil Murphy signed Bill A4455/S4503 into law on June 30, 2025, allowing eligible taxpayers to exclude certain capital gains from New Jersey gross income beginning January 1, 2026.
What the New Law Does
The new legislation exempts capital gains from selling or exchanging QSBS from New Jersey gross income, aligning the state with the federal tax treatment under IRC §1202. This means that qualifying investors can now exclude up to 100% of capital gains on eligible stock held for more than five years, subject to the greater of (i) $10 million (for stock issued before July 5, 2025) or $15 million (for stock issued after July 4, 2025), or (ii) 10 times the taxpayer’s basis in the stock.
Previously, New Jersey did not conform to federal adjusted gross income, meaning residents were taxed on QSBS gains at the state level even if they were excluded federally. This created a competitive disadvantage for startups and investors operating in the Garden State compared to other states.
The One Big Beautiful Bill Act
The timing of New Jersey’s move is strategic. The recently passed One Big Beautiful Bill Act makes permanent and expands many provisions of the 2017 Tax Cuts and Jobs Act, and provides enhancements to the rules governing QSBS. Read the most recently published QSBS article, New Legislation Expands Qualified Small Business Stock Exclusion – Withum.
By aligning with the federal QSBS rules, New Jersey signals its commitment to fostering innovation and entrepreneurship. The tax professionals at Withum can advise NJ businesses and residents on how to take advantage of the new New Jersey QSBS treatment.
Author: Nicole Angiuoli, CPA | [email protected]
Contact Us
For more information, contact Withum’s Founders and Tech Executive Services Team.
