On July 4, 2025, President Trump signed into law the “One Big Beautiful Bill Act” that significantly expands the tax benefits available for qualified small business stock (QSBS). The expanded QSBS benefits apply to stock acquired after July 4, 2025, while leaving existing QSBS benefits unchanged for stock acquired on or before that date.
The following chart summarizes the two different sets of QSBS rules that apply depending on when the stock in question was acquired:
Observations:
- Because the holding period requirement is reduced to three years, founders and investors may be able to achieve liquidity before five years while still benefiting from QSBS treatment. However, given the tiered system for gain exclusion, there remains an incentive to hold the stock for more than five years to maximize the exclusion.
- While the changes generally apply to stock acquired after July 4, 2025, the increase in the gross asset test appears to apply to all corporations. Therefore, it appears corporations that previously exceeded the $50 million threshold but have not yet exceeded $75 million will be able to issue additional QSBS-eligible stock.
- Given that different QSBS rules apply depending on when the stock was acquired and how long it has been held, recordkeeping will become even more important. For example, in an M&A transaction involving a partial rollover with stock acquired at different times, it may be important to designate specified shares to ensure proper tax treatment.
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