The "One Big Beautiful Bill" Act (OBBBA) has expanded tax breaks for the exclusion of gains from the sale of qualified small business stock (QSBS).
Summary of QSBS Changes with OBBBA
To be QSBS, the issuing corporation must meet the qualified small business asset test. The maximum asset value that qualifies a small business for QSBS status has been increased from $50 million to $75 million for stock issued after July 4, 2025. This means that larger startup companies may qualify as QSBS issuers.
Before OBBBA, QSBS generally provided a 100% capital gains exclusion for the sale of stock held for at least five years. If the stock was held for less than five years, there was no partial exclusion.
Under OBBBA, if QSBS was acquired after July 4, 2025, partial exclusions are available as listed below:
Held ≥ 3 years: 50% of the gain can be excluded
Held ≥ 4 years: 75% exclusion
Held ≥ 5 years: 100% exclusion
Gains not excluded under the 50% or 75% buckets are still taxed as capital gains, but at higher statutory rates (e.g., 28% for QSBS).
Before OBBBA, the QSBS gain exclusion was limited to the greater of:
$10 million per issuer per taxpayer, or
10x basis in the QSBS stock
Under OBBBA, for stock acquired after July 4, 2025, the gain exclusion is the following:
The flat dollar limit increases to $15 million per issuer
This $15 million is indexed for inflation beginning after 2026
The 10x basis option remains available and may be higher for some taxpayers
QSBS Tax Planning benefits with OBBBA
Earlier Liquidity
Investors and founders can plan to recognize gain on an earlier schedule (after 3 or 4 years) and still get substantial tax exclusions, improving after-tax proceeds.
Larger Potential Exclusions
The increase from $10 million to $15 million (plus inflation indexing) means larger gains may be sheltered, benefiting growth-stage startup companies.
Larger Companies Qualify
Raising the asset cap makes more companies eligible as QSBS issuers, expanding the pool of investments that can qualify.
QSBS Valuations
QSBS acquired after July 4, 2025, becomes more valuable as an investment asset for company founders and investors.
Investors should consider these expansion rules when deciding whether to issue QSBS or invest in it.
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