The One Big Beautiful Bill brings a long-awaited overhaul to Section 1202, which governs the Qualified Small Business Stock (QSBS) gain exclusion. If you’re a startup founder, early investor, or small business owner thinking about equity-based exits — this change could be a game-changer.
Here’s a breakdown of what’s new, who benefits, and how to plan ahead.
Faster Timeline to Tax-Free Gains
Previously, you had to hold QSBS for 5 years to be eligible for 50%, 75%, or 100% gain exclusion, depending on when the stock was acquired.
Starting now, for QSBS acquired after the new law’s enactment, there’s a phased-in schedule for the exclusion:
3 Years 50%
4 Years 75%
5+ Years 100%
This means you can qualify for meaningful tax relief in just three years — a huge win for founders planning medium-term exits.
Larger Lifetime Cap on QSBS Gains
Another big change: the per-issuer lifetime cap has increased.
Old Rule: $10 million lifetime exclusion per taxpayer, per corporation.
New Rule (for post-enactment stock):
✅ $15 million lifetime exclusion (indexed for inflation starting 2027)
✅ Still $10 million for older QSBS
✅ Special phase-out rules to avoid "double dipping" between old and new stock
Also:
For married filing separately: the cap is halved
Once you hit the cap, you’re done — no additional inflation bumps in future years
Higher Gross Assets Limit = More Eligible Startups
To qualify for QSBS, a company must have less than $50M in assets at the time of stock issuance.
The new law raises that cap to $75M, indexed for inflation — opening the door for more late-stage startups and larger seed rounds to qualify.
This change applies to stock issued after enactment — a big win for high-growth companies scaling with venture funding.
What Stays the Same
You still need to buy original-issue C corporation stock (not from another shareholder).
The company must still meet the active business and domestic C-corp requirements.
The 100% exclusion still avoids federal income tax AND AMT if you meet the 5-year holding requirement.
Why This Matters Now
If you're:
Raising funds through equity,
Planning to sell a startup in the next 3–5 years, or
Allocating capital gains into early-stage companies…
These new rules sharpen the edge of QSBS as one of the most powerful tax tools in the code.
Planning Tip
Carefully track acquisition dates. The new holding periods and $15M cap only apply to stock acquired after enactment of the bill. Your existing QSBS keeps its prior treatment — but you’ll need to track both tiers if you hold old and new stock in the same company.
Let’s Talk Strategy
QSBS planning involves more than just the tax code — it’s about exit timing, equity structure, and your broader financial goals. We help founders and investors:
Review eligibility and documentation
Strategize around timing and stacking exclusions
Coordinate with estate or trust planning
Want to review your current stock or get set up for QSBS success going forward? Reach out — we’ll help you make the most of this powerful update.