Effective for tax years beginning on or after January 1, 2025, New Jersey has enacted its own Qualified Small Business Stocks (QSBS) QSBS capital gains tax exemption. New Jersey’s new state-level QSBS law aligns with its federal counterpart, Section 1202, and applies retroactively as of January 1, 2025.
Federal QSBS Exclusions and State Tax Implications
Allowing capital gains tax exclusions for QSBS encourages investment in U.S. small businesses. These laws help channel capital to growing enterprises while offering a strategic tax advantage for investors seeking to minimize capital gains taxes. Currently, federal law provides two regimes under which taxpayers may claim QSBS benefits:
- QSBS Issued Before Passage of the One Big Beautiful Bill Act (OBBBA)
Investors who hold QSBS issued before the passage of the OBBBA (signed into law by President Trump on July 4, 2025) may exclude at least $10,000,000 of recognized capital gains from their taxable income, provided certain criteria are met and the stock is held for at least five years.
- QSBS issued After Passage of the OBBBA
For stock issued after the OBBBA, the exclusion increases to at least $15,000,000, adjusted annually for inflation beginning in 2027. Eligible taxpayers can receive a 50% exclusion for holding the QSBS for three years, a 75% exclusion for holding it for four years, and a 100% exclusion for holding it for five years or more.
Learn more about the criteria for Qualified Small Business Stock.
Each state has its own treatment of QSBS gains at the state income tax level. States generally address the exclusion in one of three ways:
- Some states fully conform to the federal QSBS guidelines and allow a full exemption if the stock meets the requirements of Section 1202. States adopt the Internal Revenue Code (IRC) on either a static or rolling basis. Static conformity means the state conforms to the IRC as of a specific date, while rolling conformity means the state automatically adopts federal changes as they occur. In addition, certain states do not impose a state income tax, and therefore QSBS treatment is not applicable at the state level.
- Other states partially conform to federal QSBS guidelines, allowing exemptions only if additional state-specific criteria are met, such as requiring that the qualified small business operate within that state.
- Finally, some states do not conform at all and do not allow any capital gains exclusion for QSBS.
Find out how QSBS is recognized by each state here.
New Jersey QSBS Exemptions
As of January 1, 2025, New Jersey conforms to the federal QSBS rules. Under this law, net gains or income from the sale, exchange, or other disposition of QSBS are exempt from New Jersey income tax to the extent they are also excluded from federal income tax under Section 1202. Taxpayers must first determine their eligibility for the exclusion under either the pre- or post-OBBBA rules at the federal level. Once the applicable federal treatment is established, taxpayers can use it as the basis for calculating the corresponding New Jersey exemption, while accounting for any conflicting provisions under New Jersey law.
New Jersey Capital Gains Tax Rates
New Jersey taxes capital gains at the same rate as regular income. There are 7 tax brackets that range from 1.4% for income up to $20,000 to 10.75% (minus $32,926.25) for income over $1,000,001 for single taxpayers.
In comparison, federal capital gains tax rates only have 3 brackets for single taxpayers in 2025 which are:
- 0% for $0 to $47,025
- 15% for $47,026 to $518,900
- 20% for $518,901 or more
History of QSBS in New Jersey
New Jersey was previously one of only five states without a state-level QSBS exemption. Proponents of QSBS tried for years to change this. For example, Senate Bill, S2265, would have allowed the deduction of certain capital gains from sale or exchange of New Jersey qualified small business stock held for more than five years. This bill passed in the Senate with a 38-1 vote on September 27, 2018. The bill crossed over since the introduction to the Assembly Appropriations Committee but was confirmed dead/failed as of January 8, 2020. The bill never reached the Governor’s desk for a signature or a veto.
An identical bill, A4393, was introduced on September 13, 2018, with hopes it would be enacted because the law would be in effect that same day, unlike S2265. However, the bill never crossed over since the introduction to the Assembly Appropriations Committee and was confirmed dead/failed as of January 8, 2020. This bill also never reached the Governor’s desk for a signature or a veto.
Most recently, Bill A-4455 25 was reintroduced in 2025 and passed its initial committee hearing. The bill offered retroactive relief by applying to stock issued after January 1, 2015. In addition to mirroring the federal QSBS framework, the bill introduced two unique qualifying requirements:
- The corporation needs to have fewer than 225 employees.
- At least 80% of the company’s payroll must be in New Jersey for a shareholder to claim the full $10 million exclusion; however, the exclusion is capped at $8 million for companies in which fewer than 80% of the employees work from New Jersey.
These additional stipulations were eventually removed from the final bill which was signed by governor Phil Murphy.
Entrepreneurship in New Jersey
Ideagist has a comprehensive list of startup accelerators and incubators in the state of New Jersey.
Among other industries, the following industries in particular thrive in the state:
- Life Sciences
- Clean Energy
- Technology
- Film and Media
- Advanced Manufacturing
- Logistics
- Food and Beverage
- Financial Services
Programs Besides QSBS that Support Small Business in New Jersey
The New Jersey Economic Development Authority offers foundational support to businesses of all sizes in order to foster the state economy. Their services included but are not limited to jobs-based tax credits, real estate and development tax credits, community development programs, main street technical assistance, innovation economy programs, clean energy programs, and low-interest business financing.They administer is the New Jersey Innovation Evergreen Fund which is designed to stimulate investment in high-growth, innovative businesses within the state by leveraging the sale of state tax credits to generate capital for venture investments.
Another state incentive for investors is the popular Angel Investor Credit which replaced the Small New Jersey Based High Technology Business Investment Credit. This credit incentivizes high net worth individuals to back high-risk technology start-up ventures which are based in New Jersey and have less than 150 employees. Taxpayers can receive a credit up to 40% of their investment in a qualified business (subject to a cumulative cap of $25 million in credits per year, with unused credits carrying over).
New Jersey Opportunity Zones
New Jersey is home to approximately 169 Opportunity Zones.
Opportunity Zones (OZ) were created to help economically distressed areas by giving investors preferential tax treatment with new investments in these “specified” areas. Similar to QSBS, if the investment meets eligibility criteria and is held for at least 5 years, the investor can defer or be exempted from capital gains taxes (i.e. if held for at least 5 years, the taxpayer can exclude 10% of the gain and the percentage increases (or “steps up”) to 15% after 7 years).
Opportunity Zone investments can be in the stock of an OZ Qualified Business, an OZ partnership interest or an OZ business property.
To be a Qualified Opportunity Zone Business, the business must meet requirements such as at least 50% of the business’s total gross income being derived from within the Opportunity Zone. To learn more about Opportunity Zone qualifications, please refer to the Opportunity Zones and QSBS article.
Under the Tax Cuts and Jobs Act of 2017, 26 USC 1400Z-2, New Jersey made Opportunity Zones, is also home to the associated tax relief incentives that accompany these zones which are effective for tax years beginning on or after December 31, 2017. Refer to this map for the Opportunity Zones in the state and here for all Opportunity Zones in the United States.
Some Examples of New Jersey Opportunity Zones include:
- Elizabeth General Hospital Redevelopment
- Refrigerated Seafrigo Warehouse
- Tern Landing Redevelopment
See more at nj.gov-New Jersey Opportunity Zones.
This article does not constitute legal or tax advice. Please consult with your legal or tax advisor with respect to your particular circumstance.