Updated December 2025

ISOs, RSUs, Restricted Stock: Which Can Be QSBS?

Not all startup equity is created equal for QSBS purposes. Your stock type determines when—and whether—your 5-year holding period starts.

Get this wrong and you might think you qualify when you don't. Or miss out on years of holding period you've already completed.

Quick Reference: When Does Your Clock Start?

Stock Type	You Own Stock When...	QSBS Clock Starts	83(b) Option?
Common Stock	Purchase date	Purchase date	N/A
ISOs / NSOs	Exercise date	Exercise date	No
Early-Exercised Options	Exercise date	Exercise (with 83b) or Vesting (without)	Yes
Restricted Stock	Grant date (subject to vesting)	Grant (with 83b) or Vesting (without)	Yes
RSUs	Vesting/delivery date	Vesting date	No
Converted Preferred	Conversion date	Conversion date	N/A

ISOs and NSOs: The Grant vs Exercise Trap

Stock options are not stock. They're the right to buy stock. Your QSBS clock doesn't start until you actually exercise.

The most common mistake:

Jan 2020: Options granted

Jan 2022: Options vest

Jan 2025: Sale — "I've held these 5 years!"

Problem: You never exercised. You have no stock. No QSBS.

What should have happened:

Jan 2020: Options granted

Jan 2020: Exercise options immediately ← CLOCK STARTS

Jan 2025: Sale — 5 years complete, QSBS applies

Learn more about ISO exercise timing →

RSUs vs Restricted Stock: They're Not the Same

These terms sound similar but work completely differently for QSBS:

RSUs (Restricted Stock Units)

• A promise to give you stock in the future
• You own nothing until vesting
• No 83(b) election possible
• QSBS clock starts at vesting/delivery
• Common at later-stage companies

Restricted Stock

• Actual stock issued to you immediately
• Subject to vesting (company can buy back if you leave)
• 83(b) election available
• With 83(b): clock starts at grant
• Common at early-stage startups

How to tell which you have:

Check your grant agreement. Restricted stock agreements say you're receiving "shares" subject to repurchase. RSU agreements say you'll receive shares on a future vesting date. If you're unsure, ask your company's equity administrator.

The 83(b) Advantage

For restricted stock and early-exercised options, filing an 83(b) election within 30 days can start your QSBS clock years earlier.

4-year vesting schedule comparison:

Without 83(b):

Clock starts at each vest

Last shares qualify: Year 9

With 83(b):

Clock starts at grant

All shares qualify: Year 5

The 83(b) deadline is 30 days from grant—no exceptions. Miss it and your clock starts at vesting.

Full guide to 83(b) elections →

Special Cases

Preferred Stock (Investor shares)

Preferred stock can qualify for QSBS if it meets all requirements. Clock starts at purchase. Many later-stage preferreds fail the $50M/$75M gross assets test.

Converted Preferred → Common

If preferred converts to common (often at IPO or acquisition), your QSBS holding period starts at conversion, not when you originally bought the preferred.

Inherited Stock

Inherited QSBS includes the decedent's holding period. If they held for 5+ years, you qualify immediately. The tacking rules are favorable.

Gifted Stock

Gifted QSBS carries over the donor's holding period and basis. If the donor held for 3 years and you hold for 2 more, you qualify.

Not Sure What Type of Stock You Have?

Look at your original grant documents. Key things to check:

• Stock Option Agreement — You have options (ISOs or NSOs). Check if you've exercised them.
• RSU Award Agreement — You have RSUs. Check your vesting schedule.
• Restricted Stock Purchase Agreement — You have restricted stock. Check if you filed 83(b).
• Stock Subscription Agreement — You likely purchased common stock outright.

Still unsure? Contact your company's equity administrator or check your Carta/Shareworks/Equity Edge account.