The One Big Beautiful Bill Act
The One Big Beautiful Bill Act, signed into law on July 4, 2025, introduces significant changes to the Qualified Small Business Stock (QSBS) provisions, effective for QSBS acquired after this date. Here's a breakdown of the key changes:
Gross Asset Value Cap
Under the prior law, QSBS issuers were capped at $50 million in aggregate gross assets. The new act increases this cap to $75 million, with an inflation adjustment starting in 2027. This expansion allows corporations with up to $75 million in assets to issue QSBS, increasing the pool of eligible businesses.
Per-Issuer Gain Exclusion Cap
The per-issuer gain exclusion cap has been increased from the greater of $10 million ($5 million for married filing separately) or 10x the taxpayer’s basis in QSBS, to the greater of $15 million ($7.5 million for married filing separately) or 10x the taxpayer’s basis. The cap is also indexed for inflation starting in 2027. This means investors can exclude a larger amount of gains per issuer.
Required Holding Period and Gain Exclusion
The required holding period for QSBS has been reduced from more than 5 years to at least 3 years. Additionally, a tiered gain exclusion has been introduced based on the holding period. Starting at 50% at 3 years, the exclusion increases to 100% at 5 years, with a phase-in structure. This provides more flexibility, permitting partial exclusion of gains after three years.
Other Notable Changes
- Any QSBS acquired before July 5, 2025, remains subject to the old caps and holding period rules.
- The holding period required to qualify for QSBS benefits has been shortened, with a 50-percent exclusion for gain recognized if the stock is held for three years and a 75-percent exclusion for gain recognized if the stock is held for four years.
- The Act introduces a special provision for qualified production property, allowing for the immediate expensing of 100% of the adjusted basis of the property.
- The Act permanently reinstates elective expensing for eligible business property acquired after January 19, 2025.
- The Act does not affect the structure of business or transactions.
These changes collectively expand and enhance investor tax benefits under Section 1202 for QSBS acquired after July 4, 2025, encouraging investment in qualifying small businesses. The Act also makes permanent many provisions of the 2017 Tax Cuts and Jobs Act that were set to expire in 2025. For more details, we recommend consulting a tax professional.
- The One Big Beautiful Bill Act, signed into law on July 4, 2025, has revised the tax law to offer more substantial financial advantages to investors, particularly in the field of investing and business, by expanding and enhancing investor tax benefits under Section 1202 for Qualified Small Business Stock (QSBS) acquired after the said date.
- The changes in the tax law, intrinsic to the One Big Beautiful Bill Act, also affect the finance sector by increasing the Gross Asset Value Cap for QSBS issuers, allowing corporations with up to $75 million in assets to issue QSBS, and by introducing a tiered gain exclusion based on the holding period, providing more flexibility for investors to exclude a larger amount of gains per issuer after at least a 3-year holding period.
