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One Big Beautiful Bill Act: QSBS Changes Summary & Executive Checklist (2025)

  • Writer: Bit Bookkeeper
    Bit Bookkeeper
  • Jul 29
  • 15 min read

Updated: Sep 5

  • Shorter Holding Periods for QSBS Exclusion: The OBBBA introduced tiered holding periods. For stock acquired after July 4, 2025, investors can now exclude 50% of gain after 3 years and 75% after 4 years, with the full 100% exclusion at 5+ years still availablegtlaw.com. (Previously, no exclusion was allowed until a 5-year holding period was met.) Importantly, the 100% tax-free gain benefit is retained – OBBBA did not repeal or reduce the full exclusion for long-term QSBS holdingsgtlaw.com.


  • Higher QSBS Gain Exclusion Cap: The lifetime per-issuer gain exclusion limit under §1202 was increased from $10 million to $15 million (for each investor, per company) on stock acquired post-OBBBAgtlaw.com. This $15M cap will be indexed for inflation starting in 2027gtlaw.com. (The alternative cap of 10× the stock’s basis remains unchanged.) Together with the new holding-period tiers, this expansion boosts the total tax-free gain investors can realizegtlaw.com.


  • Larger “Qualified Small Business” Size Eligibility: OBBBA raised the maximum assets threshold for a company to qualify as a qualified small business from $50 million to $75 million (aggregate gross assets, measured at the time of stock issuance)gtlaw.com. This limit will also be inflation-adjusted after 2026gtlaw.com. The higher threshold allows larger startups and later-stage companies – especially capital-intensive tech/crypto ventures – to issue QSBS and still qualify for the exclusionrsmus.com.


  • Effective Date & Grandfathering: All these changes apply only to QSBS acquired after July 4, 2025 (the Act’s enactment date)gtlaw.com. Stock issued on or before that date is grandfathered under the prior rules, i.e. still generally requires a >5-year hold for up to 100% exclusion and is subject to the old $10M capgtlaw.com. Thus, pre-OBBBA QSBS retains the original benefits (100% exclusion after 5 years, $10M cap), while post-OBBBA QSBS enjoys the new enhancements going forward.


  • No New Income Limits or AMT Changes: OBBBA did not introduce any income-based phase-outs or taxpayer income thresholds for claiming the QSBS gain exclusion – high-income investors remain eligible for the full benefit so long as QSBS requirements are met. In addition, excluded QSBS gains remain exempt from the alternative minimum tax (AMT), as under prior lawgtlaw.com. (Any portion of QSBS gain that is taxable due to a partial exclusion is taxed at 28% federal capital gains rate, plus the 3.8% NIIT, but this 28% portion is not an AMT preference itemfrostbrowntodd.com.)


  • Other Notable Updates: The Act made indirect changes that help companies qualify for QSBS. Notably, it restored 100% expensing of domestic R&D costs (reversing a prior requirement to capitalize R&E costs) and clarified that foreign research expenditures count toward the “active business” test for QSBSbakertilly.com. These changes mean R&D-heavy startups can more easily stay under the asset cap and meet the active trade/business requirementcrowell.com. Importantly, OBBBA did not change the definition of “qualified trade or business” under §1202 – companies in certain excluded industries (e.g. financial services, professional services, etc.) are still ineligible for QSBS treatment as before (unchanged by the Act).


Key Changes to QSBS Under the OBBBA

1. Tiered Holding Periods and Partial Exclusions

Under prior law, investors had to hold QSBS for more than 5 years to get any exclusion (typically 100% for stock acquired since 2010). The OBBBA shortens this timeline for new investments. For QSBS acquired after July 4, 2025, §1202 now provides a 50% exclusion after ≥3 years and 75% exclusion after ≥4 years, in addition to the full 100% exclusion at ≥5 years yearsgtlaw.com. In other words, early exits can still earn a substantial tax break: a sale after 3 or 4 years can exclude half or three-quarters of the gain from income, respectively, whereas before OBBBA such a sale would yield no QSBS benefit. Any taxable portion of a gain (the 50% or 25% portion not excluded) will be taxed at a special 28% capital gains rate (plus 3.8% NIIT) instead of the normal 20% rateproskauertaxtalks.com. Crucially, the longstanding 100% exclusion for 5+ year QSBS holdings remains fully intact for post-OBBBA stockgtlaw.com – OBBBA did not curtail the maximum benefit, it only added the new 3- and 4-year options. (Excluded gains also continue to be shielded from AMT, as noted above.)


2. Increased Per-Investor Exclusion Cap

OBBBA significantly expanded the per-investor limit on how much gain can be excluded under §1202. For each qualified small business issuer, an investor was previously capped at excluding $10 million of gain (lifetime, per issuer), or alternatively up to 10× their basis in the stock, whichever is greatergtlaw.com. Under the new law, for stock acquired after July 4, 2025, the cap is the greater of $15 million (a 50% increase) or 10× basisgtlaw.com. The $15 million cap will be indexed for inflation in tax years after 2026gtlaw.com, meaning it will gradually rise over time. (For married couples filing separately, the $15M cap is halved to $7.5M, just as the old $10M cap was $5M per spousebakertilly.com.) Importantly, prior QSBS exclusions claimed still count toward the cap for that issuer – OBBBA includes ordering rules so that any amounts excluded under the old $10M cap or new $15M cap reduce what can be excluded in the futuregtlaw.com. By also raising the qualified asset threshold (discussed below), the Act effectively increases the potential 10× basis limit as well – theoretically, an investor could exclude up to $750 million of gain if they invested $75M into a single qualifying company (up from a $500M max under prior law)bakertilly.com. For most founders and early investors, however, the new $15M per-issuer cap will be the more relevant limit, greatly enhancing the tax-saving potential compared to the old $10M ceiling.


3. Higher Company Asset Threshold for QSBS Qualification

To be eligible for QSBS, a corporation must be a “qualified small business” when the stock is issued – meaning its gross assets did not exceed $50 million at that time (under the old law). The OBBBA modernized this requirement by raising the aggregate gross asset limit to $75 million for stock issued enactmentgtlaw.com. In other words, companies can be 50% larger (by assets) and still qualify as “small” for §1202 purposes. This change is indexed for inflation starting in 2027, ensuring the threshold keeps pace with the economygtlaw.com. The higher asset cap is especially beneficial for tech startups, crypto ventures, and other capital-intensive companies that often require significant funding or hold valuable assets – many more of these can now remain under the $75M line and preserve QSBS statusrsmus.com. Note that the $75M test applies at the time of stock issuance (and immediately after issuance) for post-OBBBA stock. For stock issued on or before July 4, 2025, the previous $50M limit still applies (those companies had to meet the $50M test to confer QSBS status on their stock)gtlaw.com. Founders and investors should be mindful of this when evaluating whether older stock versus new stock qualifies. Overall, this inflation-adjusted expansion of the asset test widens the pool of companies eligible for QSBS treatment, reflecting the growth in startup valuations since the $50M limit was set decades ago.


4. Other Eligibility and Rule Changes

Other refinements in OBBBA support the QSBS incentive without directly altering §1202’s main clauses. One key change involves research and experimental (R&E) expenditures: the Act permanently reinstated the ability to fully expense domestic R&E costs starting in 2025, reversing a recent rule that had required capitalization of those costscrowell.com. This matters for QSBS because companies that can deduct R&D immediately will show a lower asset base on their books, helping them stay under the $75M asset threshold. Relatedly, OBBBA clarified that for purposes of the “active business” requirement (which mandates that at least 80% of a corporation’s assets are used in the active conduct of a qualifying business), usebakertilly.com. Previously, there was ambiguity about whether foreign research expenditures qualified – now they do, which is helpful for startups with overseas development operations. Aside from R&D considerations, most other QSBS eligibility rules were unchanged by the Act. For example, the corporation must still be a U.S. C-corporation (QSBS benefits are not available for LLCs or S-corps), and it must be engaged in a qualified trade or business – i.e. not one of the excluded industries like services, finance, banking, farming, mining, running a hotel/restaurant, etc. (OBBBA made no modifications to the list of excluded business types in §1202(e).) The stock itself still must be acquired at original issue (directly from the company for money, property (other than stock), or as compensation) and not via a secondary marketgtlaw.com. Likewise, if the issuing company redeems a lot of its stock or fails to meet the active business requirement during the investor’s holding period, the stock could lose QSBS status – OBBBA did not change these anti-abuse and compliance provisions. In short, aside from the headline enhancements (holding period, caps, size limits), the fundamental qualifying criteria for QSBS remain in place. Founders should continue to ensure their companies qualify at issuance and throughout the required holding period, and investors should document all the elements (original issuance, active business, gross assets, etc.) as before.


5. Effective Dates and Transition Rules

The timing of stock acquisition is critical in determining whether the new OBBBA rules or the old law applies. The Act was signed on July 4, 2025, and its QSBS provisions generally take effect for stock dategtlaw.com. Practically, this means QSBS issued on July 5, 2025 or later falls under the new regime (3/4/5-year tiers, $15M cap, $75M assets), while rulesgtlaw.com. There is a clear grandfathering of existing QSBS: if you acquired shares earlier, nothing is taken away – you still potentially get a 100% exclusion after 5 years (assuming the stock qualified under the old $50M asset test and other requirements), with the $10M per-issuer cap (unindexed) still governing those sharesgtlaw.com. The new law does not retroactively change the treatment of pre-OBBBA stock. For example, if you bought QSBS in 2022, you’ll still need to hold >5 years to exclude gain, and you’re capped at $10M from that issuer – but you also won’t be affected by the new partial exclusion structure or higher cap, since those apply only going forward. Notably, the Act did not change the rollover provision under IRC §1045, which allows a taxpayer to sell QSBS after holding it at least 6 months and roll the proceeds into new QSBS (within 60 days) to tack on holding period and defer gain. That means if someone holds post-OBBBA QSBS for, say, 2 years and wants to sell, they could use §1045 to invest in another QSBS and potentially still reach the 3-year mark for a 50% exclusion on the replacement stock – just as before, §1045 can bridge holding periods but the rules around it remain the same (the Act made no direct change to §1045)frostbrowntodd.com. In summary, QSBS issued pre-Act: old law; QSBS issued post-Act: new law. Founders and investors may want to separately track their pre-July 2025 stock vs. post-July 2025 stock, since the benefits and planning strategies (like how long to hold) will differ under each regime.


Updated QSBS Executive Audit Checklist (Post-OBBBA Law)

For founders and investors, the following checklist reflects current QSBS law (as of 2025, after OBBBA). It highlights the key requirements to qualify for the §1202 gain exclusion, with notes on OBBBA changes where applicable. Use this as an audit tool to ensure compliance and to understand the available tax benefits:


  • Entity Qualification: Confirm the company is a U.S. C-Corporation (not an LLC, S-Corp, or foreign entity) conducting a qualified trade or business. It must not be an excluded industry such as professional services, banking/finance, farming, mining, or hospitality, among others (per IRC §1202(e)). OBBBA Impact: No change – the Act did not alter the definitions of eligible business activities. Tech and crypto startups generally qualify unless they fall into a listed exclusion (e.g. a pure financial services business might not qualify).


  • Original Issuance of Stock: Verify that the stock was acquired by the current holder at original issuance – directly from the corporation (not via a secondary market purchase) and in exchange for money, property (not other stock), or servicesgtlaw.com. This is fundamental for QSBS. OBBBA Impact: No change. (Ensure any stock transfers or conversions were handled in a manner that preserves “original issuance” status – certain tax-free reorganizations or partnership distributions can maintain QSBS status, but these rules remain as before.)


  • Gross Assets Test at Issuance: Confirm that at the time the stock was issued, the corporation’s aggregate gross assets did not exceed the allowed limit. For stock on or before July 4, 2025, the company’s assets must have been ≤ $50 million. For stock after July 4, 2025, the assets must be ≤ $75 million (as increased by OBBBA)gtlaw.com. Note: Aggregate gross assets include cash and the adjusted basis of other assets; this threshold is tested immediately before and after the issuance. OBBBA Change: The Act raised the limit to $75M for new issuances (with inflation indexing from 2027 onward), up from the long-standing $50M cap, thereby expanding QSBS eligibility to larger startupsgtlaw.com.


  • Active Business Requirement (80% Test): Throughout the holding period, at least 80% of the corporation’s assets must be used in the active conduct of a qualified trade or business (the same business type that must not be excluded, as noted above). Review the company’s activities and asset composition during the time you held the stock – passive investment of cash or stockpiling assets not used in the business can jeopardize this test. OBBBA Change: The Act bolstered this requirement by facilitating R&D-heavy businesses – it businessbakertilly.com, and by restoring immediate expensing for domestic R&E costs, it prevents inflated asset values that could push a company over the limitcrowell.com. Ensure the company’s research activities (including foreign R&D) are documented, as they now explicitly help satisfy the 80% active-use test. (No changes to the 80% threshold itself – just the treatment of R&E and the higher asset cap as noted.)


  • Stock Holding Period: Confirm the length of time you (and any prior owner, if tacked) have continuously held the stock, as this determines the eligible exclusion percentage. Under current law for post-OBBBA stock (acquired after 7/4/2025):

- Held ≥3 years: 50% of the gain is excludable

- Held ≥4 years: 75% of the gain is excludable

- Held ≥5 years: 100% of the gain is excludablegtlaw.com. For pre-OBBBA stock (acquired on or before 7/4/2025), you generally still need to hold >5 years to qualify, but then up to 100% of the gain can be excluded (if the stock was acquired after Sept. 27, 2010)crowell.com. OBBBA Change: The Act introduced the 3- and 4-year tiered exclusions for new QSBS; previously, no exclusion was available before 5 years. Action: Check acquisition dates and plan dispositions accordingly – e.g. a founder who received stock in 2026 can now consider selling after 4 years with a 75% exclusion if needed, whereas a founder with 2020 stock still needs to clear 5 years for any federal exclusion.


  • Per-Issuer Exclusion Cap: Calculate the total gain eligible for exclusion and ensure it does not exceed the per-issuer limit applicable to you. The limit is the greater of: (a) a fixed dollar amount or (b) 10× your basis in the stock sold. For stock acquired >July 4, 2025, the fixed dollar cap is $15,000,000 of gain per issuer (lifetime, per taxpayer)gtlaw.com. For stock acquired on/before July 4, 2025, the cap remains $10,000,000 per issuergtlaw.com. (If married filing separately, these amounts are halved per spousebakertilly.com. On a joint return, a married couple shares one cap.) OBBBA Change: The Act raised the dollar cap to $15M for post-2025 acquisitions and indexed it for inflation going forwardgtlaw.com. This is a substantial increase – be mindful that if you previously used any of the $10M exclusion on an issuer, the new $15M cap for additional stock might effectively be $5M higher than what you have left (since prior usage carries over). Always deduct any prior excluded gains from the available cap for that issuergtlaw.com. If your potential gain exceeds the cap, remember that you can still exclude up to the cap and only the excess is taxable.


  • Exclusion Percentage and Tax Rate on Remainder: Based on the holding period (above), determine what percentage of your gain is excludable under §1202. Ensure you apply the correct tax treatment to any non-excluded portion. If, for example, you sell post-OBBBA QSBS after 3 years, 50% of the gain is excluded and the remaining 50% is taxed at a 28% federal capital gains rate (not the usual 20%)proskauertaxtalks.com. Similarly, a 4-year hold means 25% of the gain is taxed at 28%. A full 5-year hold means 100% is excluded (no federal tax on the gain). Note: These special 28% rate provisions mirror the original QSBS rules and effectively maintain the tax benefit. OBBBA Confirmation: The Act specifies that any taxable portion of a QSBS gain (due to partial exclusion or cap limits) is taxed at 28%, and importantly, purposesfrostbrowntodd.com (no AMT add-back, consistent with post-2010 QSBS rules). Also be aware that the 3.8% Net Investment Income Tax (NIIT) still applies to the taxable portion of the gain (since the NIIT applies to capital gains generally). Thus, if you have a partially excluded gain, your effective rate on that portion will be 28% + 3.8% NIIT in most casesgtlaw.com. Plan liquidity and tax estimates accordingly.


  • Prior QSBS Exclusions Used: Check whether you have previously claimed a QSBS exclusion on earlier sales of stock from the same company. The $10M or $15M per-issuer cap is a cumulative lifetime limit per investor, per company. Any amounts of gain you excluded in the past for a given issuer must be subtracted from the cap going forwardgtlaw.com. For example, if you excluded $5M of gain from XYZ Corp in a prior year, a new sale of XYZ stock will have an effective remaining limit of $5M (under the old $10M cap) or $10M (if the new $15M cap applies to you). OBBBA Tip: Because the new law increases the cap for post-Act stock, there may be planning opportunities – e.g. an investor who maxed out $10M on old stock might potentially get a higher cap on new shares issued after 2025 (the mechanics can be complex, so consult a tax advisor if you’re in this situation). Always document your prior QSBS claims for each issuer to avoid accidentally over-claiming beyond the limit.


  • Investor Eligibility (Non-Corporate Taxpayer): Verify that the seller of the stock is an eligible taxpayer. QSBS gain exclusion is only available to non-corporate holders – individuals, trusts, estates, and pass-through entities (partnerships/S-corps) that pass the benefit to their individual ownersfrostbrowntodd.com. Corporations cannot use the §1202 exclusion. OBBBA Impact: No change. This remains the same – for instance, if a venture fund (partnership) sells QSBS, the exclusion can flow through to its partners, but if a C-corp were somehow a stockholder, it gets no special treatment. Ensure the holding structure allows the benefit to reach a taxpayer who can use it (founders and VC funds typically qualify, but, say, a corporate VC arm would not).


  • Section 1045 Rollover Option: If you are considering selling QSBS before meeting the required holding period for a desired exclusion (e.g., before 5 years for 100% exclusion, or now before 3 or 4 years for the partial exclusions), evaluate whether a §1045 rollover is feasible. Section 1045 allows you to defer gain by reinvesting the proceeds into new QSBS within 60 days, as long as you’ve held the old QSBS for at least 6 monthsfrostbrowntodd.com. This can preserve your ability to eventually claim the full exclusion on the replacement stock (tacking on the holding period). OBBBA Note: The new law did not change §1045, but the introduction of 3- and 4-year exclusion tiers gives you more strategic choices. For example, with post-OBBBA stock, if an early exit is necessary in year 2, rolling into new QSBS could still let you reach the 3-year mark on the new investment for a 50% exclusion. Always document the rollover properly and ensure the new investment meets all QSBS criteria from the start.


  • State Tax Considerations: Remember to check state and local tax rules on QSBS. Many states conform to the federal §1202 exclusion, but some do not. For instance, California does not offer a QSBS exclusion for state income tax purposesrsmus.com, and Pennsylvania has its own rules. The OBBBA changes are federal law; they do not automatically affect state tax treatment. So, a “100% excluded” gain federally might still be taxable in your state. For tech and crypto founders in high-tax states, this is crucial for tax planning. OBBBA Impact: None directly, but the larger federal exclusion could make state tax exposure a bigger piece of the puzzle. Consult with a tax advisor on your state’s conformity to §1202 – you may need to plan liquidity for a state tax bill even if the IRS shows no taxable gain.


Legal Citations: The changes above were enacted as part of Pub. L. 119-21 (OBBBA 2025). Key amendments to IRC §1202 include: §1202(a) (percentage exclusion by holding period), §1202(b) (gain cap increase), and §1202(d) (gross assets test threshold). These provisions, as amended, apply to qualified small business stock issued on or after the Act’s effective date (July 4, 2025)gtlaw.com. Founders and executives should consult these code sections and any IRS guidance when making financing and exit decisions, to fully leverage the generous tax benefits now available under the updated QSBS regime. Always maintain thorough records (the “QSBS file”) to substantiate that each requirement is met – especially in light of these new thresholds – as the IRS can demand proof that your stock qualified and was eligible for the exclusion at the time of salefrostbrowntodd.comfrostbrowntodd.com. With the OBBBA’s enhancements, QSBS remains a powerful tax planning tool for startup stakeholders, rewarding long-term investment in small U.S. businesses with potentially tax-free upside.


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