Expanded QSBS Benefits Under One Big Beautiful Bill Act

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The One Big Beautiful Bill Act ("OBBBA") was recently signed into law on July 4, 2025. One of the changes to the tax code in the OBBBA impacts qualified small business stock...

United States Tax

The One Big Beautiful Bill Act ("OBBBA") was recently signed into law on July 4, 2025. One of the changes to the tax code in the OBBBA impacts qualified small business stock ("QSBS") under Section 1202¹. The changes generally apply to stock issued after July 4, 2025, and make it easier for taxpayers to benefit from tax breaks when they invest in companies.

Previous articles have addressed the generous tax benefits associated with QSBS, along with the eligibility requirements that must be satisfied before stockholders are eligible to claim Section 1202's gain exclusion.

Tiered Exclusion Benefits

QSBS has special tax benefits that allow taxpayers to exclude income on the gains they realize when they sell the stock as long as they hold it for a certain period. Before the OBBBA, to take advantage of the tax benefits, taxpayers had to hold QSBS for at least 5 years to obtain any tax benefits. Now, the OBBBA shortens the time needed to obtain some benefits and provides for tiered exclusion benefits. Here's how the new holding periods work:

Hold for 3 years: 50% applicable exclusion percentage.
Hold for 4 years: 75% applicable exclusion percentage.
Hold for 5 years or more: 100% applicable exclusion percentage.

Increased Exclusion Cap

The OBBBA also increased the exclusion amount for taxpayers. Previously, the maximum exclusion amount was the greater of (a) $10 million and (b) 10 times a taxpayer's tax basis in the QSBS. The new law raises increases the $10 million cap to $15 million and includes inflation adjustments in the future.

Increased Aggregate Gross Assets Test

The OBBBA also raises the amount of gross assets (basically, the total value of a company's assets) a company can have before it becomes unable to issue QSBS. Previously, companies had to have assets worth no more than $50 million. Now, that limit was increased to $75 million. This increased gross asset limit is especially helpful for companies that are not currently structured as corporations but are considering changing their operating structure to take advantage of QSBS.

The Bottom Line

The OBBBA is designed to make it easier for taxpayers to benefit from tax savings when they invest in small businesses. The new law cuts down on how long a person needs to hold QSBS to obtain tax-free gains, increases the amount a person can exclude from taxes, and gives companies more leeway to issue QSBS. If you are thinking about trying to utilize QSBS, reach out to TW Langevin to schedule a call and explore how you can capitalize on Section 1202's expanded opportunities.

Footnote

1. Unless otherwise noted, "Section" refers to Sections of the Internal Revenue Code of 1986, as amended.

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