On July 4, 2025, President Trump signed into law the One Big Beautiful Bill Act (OBBBA), a sweeping tax reform package that includes major updates to the Qualified Small Business Stock (QSBS) rules under Section 1202 of the Internal Revenue Code. These changes are poised to reshape how founders, early-stage investors, and startup employees think about equity and exit strategies.
Key Changes to QSBS
1. Tiered Gain Exclusion Based on Holding Period Previously, QSBS had to be held for at least five years to qualify for a 100% capital gains exclusion (if acquired after 2010). The new law introduces a tiered system for stock acquired after July 4, 2025:
- 3 years: 50% exclusion
- 4 years: 75% exclusion
- 5+ years: 100% exclusion
This gives investors more flexibility and earlier access to tax benefits.
2. Increased Gain Exclusion Cap The per-issuer cap on excludable QSBS gain has been raised:
- From $10 million to $15 million for stock acquired after July 4, 2025
- The new cap will be adjusted for inflation starting in 2027
3. Higher Company Asset Threshold To qualify as a QSBS issuer, a company's gross assets must now be under $75 million (up from $50 million), expanding eligibility to more mature startups.
4. AMT Relief Gains excluded under the new 50%, 75%, and 100% rules are not considered tax preference items for Alternative Minimum Tax (AMT) purposes
What This Means for You
These changes make QSBS even more attractive for startup founders, employees, and investors. The shorter holding periods and higher caps could influence how equity is structured, when stock is issued, and how exits are timed.
If you're involved in startup formation, fundraising, or planning a liquidity event, now is the time to revisit your QSBS strategy.
Feel free to reach out to us at Mintz with any questions or advice in this area.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
