Entrepreneurs and investors should consider significant changes to the rules governing qualified small business stock (QSBS) included in H.R. 1, often referred to as the “One Big Beautiful Bill” (OBBB). The OBBB was passed into law on July 4, 2025. This alert briefly outlines some of the OBBB’s most beneficial changes to QSBS. Notably, these changes only apply to stock issued after July 4, 2025 (Passage Date).
- Holding Period – The OBBB shortened the holding period for QSBS. Before passage of the OBBB, QSBS must have been held for 5 years for any gain from its disposition to be eligible for exclusion from taxable income. QSBS issued after the Passage Date is eligible for gain exclusion after it has been held for at least 3 years, with the percentage of gain excluded being based on the holding period as shown in the chart below:
Years QSBS Held Gain Exclusion Percentage
3 years 50%
4 years 75%
5 years or more 100%
- Gain Limitation – Along with the above gain exclusion percentages, QSBS is subject to a limit on the total amount of taxable gain that may be excluded. The OBBB increased this limit. For QSBS issued before passage of the OBBB, the amount of gain from the disposition of QSBS of a corporation in a taxable year that is excludable from taxable income is limited to the greater of (i) the excess of $10 million over the aggregate amount of eligible gain excluded by the taxpayer for prior taxable years and attributable to dispositions of stock issued by such corporation and (ii) 10x the taxpayer’s basis in the QSBS disposed of in that taxable year. For QSBS issued after the Passage Date, the limit on the amount of gain from the disposition of such QSBS in a taxable year that can be excluded from taxable income is equal to the greater of (i) the excess of $15 million (adjusted for inflation) over the aggregate amount of eligible gain excluded by the taxpayer for prior taxable years and the current taxable year and attributable to dispositions of stock issued by the corporation and (ii) 10x the taxpayer’s basis in the QSBS disposed of in that taxable year.
- Threshold – The OBBB also increased the gross assets test threshold. Before passage of the OBBB, the definition of a “qualified small business” required that the C corporation issuing the potential QSBS hold no more than $50 million in aggregate gross assets immediately after the issuance of the stock. The OBBB raised this $50 million threshold to $75 million (adjusted for inflation).
