August 6, 2025
QSBS Gets a Major Upgrade: The 2025 Changes Explained
On July 4, 2025, President Donald Trump signed H.R. 1, also known as the “One Big Beautiful Bill” Act or “OBBBA”. The most significant tax impact on M&A, small business investing and succession planning may be the transformation of the IRC Section 1202 Qualified Small Business Stock (QSBS) gain exclusion.
Qualified Small Business Stock (QSBS) is stock issued by a domestic C Corporation whose gross assets did not exceed $50 million prior to or immediately after the stock issuance. 80% of the corporation’s assets must also be used in a qualified trade or business. Certain businesses are excluded from the definition of qualified trade or business, including the fields of health, professional services, performing arts, consulting, athletics, financial services, brokerage services, farming, and hotel and restaurants.
Under IRC §1202, investors who held QSBS for more than five years could exclude up to 100 percent of the capital gain upon a sale, up to a maximum of greater of $10 million or 10 times their stock basis.
Section 70431 of H.R. 1, enacted July 4, 2025, broadens these benefits and makes them more accessible to founders and early‐stage investors.
Increase of Maximum Gain Exclusion to $15 Million
Under the new law, the maximum gain exclusion for stock acquired after July 4, 2025, is the greater of $15 million or 10 times the stock’s basis. For stock acquired prior to July 4, 2025, the previous limits of the greater of $10 million or 10 times their stock basis apply. The increased cap further increases the potential of one of the tax code’s most attractive opportunities.
Reduction of Required Holding Period
Prior to OBBBA, sellers of QSBS were required to have held the stock for at least 5 years in order to benefit from the Section 1202 gain exclusion. The new law amends the holding period as follows for stock issued after July 4, 2025:
| Holding Period | Exclusion % |
|---|---|
| 3 years | 50% |
| 4 years | 75% |
| 5 years | 100% |
The reduced holding period allows for much greater flexibility for exit planning and should allow for a greater number of sellers of QSBS to benefit from Section 1202.
Increase of Aggregate Gross Asset Limitation to $75 Million
Under OBBBA, for stock issued after July 4, 2025, businesses with aggregate gross assets of up to $75 million will now be eligible to be considered a Qualified Small Business under Section 1202. This is a substantial increase from the $50 million threshold, which should allow for a greater number of companies to qualify as QSBS issuers. Further, for tax years beginning after 2026, the $75 million cap will be indexed for inflation. The Aggregate Gross Asset Limitation Test is applied at all times prior to and immediately after the issuance of the stock.
Section 1202 Outlook
While the new legislation greatly improves the opportunities for small businesses to participate in the benefits offered by Section 1202, companies should approach their tax planning with the same level of diligence they applied prior to the change. The common QSBS pitfalls are just as relevant under the new law. Wilke CPAs & Advisors is available to help you navigate these changes with proactive planning.
For the full text of H.R. 1, see https://www.congress.gov/bill/119th-congress/house-bill/1/text.
For IRS guidance on capital gains rates that may affect remaining taxable gain, see https://www.irs.gov/taxtopics/tc409.
This summary reflects H.R. 1 as enacted on July 4, 2025. Tax laws evolve frequently; please consult a qualified tax advisor to tailor a QSBS strategy to your specific circumstances.
Important: This information is for educational purposes only and should not be considered tax advice. Consult with qualified tax professionals before making business decisions.