The One Big Beautiful Bill Act (OBBBA), signed into law on July 4th by President Trump, contains many sweeping changes to the federal tax code, including a significant expansion of the Qualified Small Business Stock (QSBS) benefits available under Section 1202 of the Internal Revenue Code.1 This Client Alert outlines the key changes to QSBS treatment under the OBBBA and highlights the enhanced tax savings opportunities for start-ups and their investors.
Key Changes
The modifications to the treatment of QSBS acquired after July 4, 2025 are set forth in the following comparison table:
|
Item |
Pre-OBBBA |
Post-OBBBA |
|---|---|---|
|
Per-issuer limitation: |
Greater of $10,000,000 or 10 times the holder's basis |
Greater of $15,000,000 or 10 times the holder's basis |
|
Aggregate gross asset limit:2 |
$50,000,000 (not adjusted for inflation) |
$75,000,000 (adjusted for inflation for years after 2026) |
|
Minimum Holding period: |
5 years |
3 years |
|
Percentage of gain excluded from gross income: |
|
|
Start-ups and investors considering the impact on their QSBS treatment should note that the new treatment under the OBBBA only applies to stock acquired after July 4, 2025—any QSBS acquired before that date remains subject to the pre-OBBBA treatment:
Background and Strategic Implications
QSBS provisions have long served as a tool to stimulate investment in early-stage companies by offering favorable capital gains treatment. The first iteration of QSBS was enacted in 1993, and subsequently expanded in 1998, 2009, 2015, and 2017—this most recent 2025 expansion reflects longstanding Congressional satisfaction with the results of the program and a move to continue incentivizing innovation and entrepreneurship through tax policy.
By making use of the newly enhanced QSBS savings, founders, employees, and early investors in qualifying C corporations can now achieve liquidity earlier and with better after-tax return potential than was previously possible. These changes, along with the practice of "QSBS stacking," will further multiply the potential tax savings to those who proactively plan to maximize the benefits of QSBS.
Need Guidance?
If you have questions about QSBS or how these changes may affect your investment or business strategy, or if you are planning to launch a new business and want to learn about QSBS, please contact any of the authors or the Manatt professional with whom you work.
Footnotes
1 One Big Beautiful Bill Act, H.R. 1, 119th Cong. § 70431, Expansion of Qualified Small Business Stock Gain Exclusion (2025).
2 Eligibility for QSBS treatment is limited to corporations that meet the 'qualified small businesses' requirements in Section 1202, including that the aggregate gross assets of the corporation must not exceed the specified limit. There are additional requirements not listed here that must also be considered.
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.
