New 2025 QSBS Tax Changes (OBBBA): Planning Opportunities for Startup Founders

On July 4, 2025, the One Big Beautiful Bill Act (OBBBA) was signed into law, introducing the most substantial new 2025 QSBS tax changes since 2010. These new 2025 QSBS tax changes present game-changing opportunities for U.S. startup founders approaching an exit, as well as their investors. QSBS, governed by Section 1202 of the tax code, has long been significant for founders and early investors in eligible C-corp startups. It allowed for the exclusion of up to $10 million in capital gains, or 10× the investment basis per issuer, from federal taxes if the stock is held for at least five years. This tax incentive has been a powerful driver of investment in high-growth startups.

With the OBBBA’s enactment, Post-OBBBA QSBS rules have been expanded and modernized, bringing significant optimization opportunities for investors and founders. The 2025 QSBS tax changes include shorter holding periods for earlier tax relief, increased exclusion limits, and broader eligibility criteria for qualifying companies.

It’s important to note that now there are two parallel systems that exist. QSBS acquired before July 4th, 2025, and QSBS acquired after July 4th, 2025.

This article breaks down the key updates, important dates, and actionable strategies for founders and investors to maximize the benefits of the New QSBS tax changes.

QSBS Refresher: Why It Matters

Qualified Small Business Stock refers to stock in certain small C-corporations that meets specific requirements (e.g. gross assets under $50 million prior to issuance, active business, not a disallowed industry). In exchange for investing in these higher-risk startups, investors can receive an exclusion of some or all of their capital gains when they sell the stock after a required holding period. If you acquired QSBS after September 27, 2010 and held it over 5 years, 100% of the gain on sale could be free from federal capital gains tax (up to the per-issuer cap). This meant potentially 0% federal tax on a qualified exit, which is a huge benefit for founders, employees, and angel/VC investors. However, until now it was essentially an all-or-nothing benefit. Selling even one day before the 5-year mark meant no exclusion at all, aside from using a 1045 rollover. The OBBBA changes this dynamic by introducing a tiered exclusion schedule, while also enhancing other QSBS limitations. Let’s dive into the new provisions and how they apply.

Key QSBS Tax Changes 2025

The One Big Beautiful Bill Act QSBS changes include several permanent amendments to Section 1202 at the federal level. These QSBS tax changes 2025 only apply to new QSBS stock issued on or after the law’s enactment date (July 4, 2025). Existing QSBS holdings remain under the old rules and are grandfathered. Here are the major updates:

1. Phased-In Gain Exclusion (3, 4, 5-Year Holding Periods)

Under the new QSBS tax changes, founders and investors no longer have to wait a full five years to get any tax benefit. For QSBS acquired after OBBBA’s enactment, Section 1202 now provides a tiered capital gain exclusion based on how long the stock is held.

• 3 years of holding → 50% of the gain is excluded (14% effective federal tax rate)
• 4 years of holding → 75% of the gain is excluded (7% effective federal tax rate)
• 5 years or more → 100% of the gain is excluded, as before (0% effective federal tax rate)

In other words, if you sell qualified stock after 3 or 4 years, you can now shelter a substantial portion of the gain instead of paying full tax. This replaces the old “5-year all-or-nothing” rule and encourages earlier liquidity by offering partial relief. Founders and investors who need to realize some gains earlier (e.g., via secondary sales or tender offers) will benefit. For example, an exit after 3 years can earn a 50% tax exclusion, and after 4 years a 75% exclusion, rather than forfeiting QSBS treatment altogether.

To illustrate the impact, consider the effective tax rates for top-bracket investors under these new tiers (federal long-term capital gains are typically 20% plus 3.8% NIIT ≈ 23.8%):

Note: The above assumes the gain qualifies for the full QSBS benefit. Even at 3 years, an investor would save roughly $1.47 million in federal tax per $15 million of gain compared to a fully taxable sale. At 4 years, an investor would save $2.52 million in federal tax. By 5 years, the entire gain ($3.57 million) can be federal tax-free. Importantly, these tiered exclusions apply only to post-OBBBA QSBS issued after July 4, 2025. If you already held pre-OBBBA QSBS before that date, you still need to hit the 5-year mark to get the 100% exclusion (the new 50%/75% interim breaks do not apply retroactively to previously issued stock). For pre-OBBBA QSBS holdings, prior rules remain in effect.

2. Higher Exclusion Cap: $15 Million (Plus Inflation Adjustments)

The lifetime per-taxpayer, per-company cap on eligible Post-OBBA QSBS gains has been increased for new issuances. Under the old pre-OBBBA QSBS rules, an individual could exclude up to $10 million of gain per issuer (or an alternative cap based on 10× their basis, whichever was greater) over their lifetime. The OBBBA raises this gain exclusion cap to $15 million for QSBS stock issued post OBBBA signing. This 50% increase significantly boosts the tax-saving potential for founders and investors with large exits.

Also, with the QSBS tax changes 2025, the new $15M cap will be indexed for inflation in future years. Starting in 2027, the $15M limit is set to adjust upward to keep pace with inflation. (For example, if inflation were 3% per year, the cap might rise to ~$16 million or more by the late 2020s.) However, note that once an investor has used up the $15 million exclusion for a particular company, inflation adjustments won’t increase the cap for that same issuer. In practice, this means if your gain from one startup already hit $15M tax-free, you can’t later claim more due to inflation. The indexing would mainly benefit those who have not yet maxed out their QSBS benefit for that company.

It’s also important that “coordinating rules” prevent double-dipping between the pre-OBBBA QSBS and post-OBBBA QSBS shares. You cannot treat the $10M and $15M caps as separate buckets for the same company. In other words, if you hold stock acquired before July 4, 2025 and also stock acquired after, you can’t automatically stack the caps to exclude $25M from one company. The law is for a single aggregated limit per issuer per investor. Still, the higher $15M cap (versus $10M) is a welcome expansion of QSBS for larger outcomes. And the 10× basis rule remains in effect as an alternate cap for investors who put in invested significant capital in a startup. the exclusion could exceed $15M if 10× their basis is higher. The vast majority of startup founders, however, will benefit most from the straightforward $15M per-issuer limit.

3. Expanded Company Eligibility: Asset Threshold Up to $75 Million

Another constraint that has historically limited QSBS is the “qualified small business” size test, commonly referred to as the gross asset test. Previously, a corporation could not issue QSBS if its gross assets exceeded $50 million at any time before or immediately after the stock issuance. This $50M asset threshold (set in 1993) often meant that later-stage startups or those in capital-intensive sectors would outgrow QSBS eligibility by the time of bigger funding rounds. The QSBS tax changes 2025 address this by raising the aggregate gross asset limit to $75 million for stock issued after July 4th, 2025.

Like the cap, this $75M limit will be inflation-indexed from 2027 onward, modestly increasing. It nonetheless opens new QSBS qualifications to larger “small” businesses. Many startups in technology, life sciences, and other industries that raise big Series A/B rounds could now stay under $75M in assets at issuance and thus keep QSBS eligibility for their investors. This change broadens the pool of companies that can offer QSBS benefits, which in turn could make it easier for growth-stage startups to attract investment (since investors know there’s a potential tax-free upside). Founders should still ensure they meet all the other QSBS requirements (being a U.S. C-corp, active business, non-disqualified industry, etc.), but the higher asset ceiling provides much more headroom before tripping the limit.

4. Effective Date and Grandfathering of Old QSBS Stock

All the enhancements above, such as the 3/4-year partial exclusions, the $15M cap, and the $75M asset limit apply only to QSBS issued on or after July 4, 2025 (the OBBBA’s signing date). If you acquired QSBS before that date, nothing changes for those shares: they remain subject to the prior Section 1202 rules. Practically, this means two parallel regimes will exist going forward:

• “Old” QSBS (pre-OBBBA issuance): 5+ year hold for 100% exclusion (if acquired after 2010), $10M cap (no inflation indexing), $50M company asset limit.
• “New” QSBS (issued post-OBBBA): 3/4/5-year hold for 50/75/100% exclusion, $15M cap (indexed), $75M asset limit.

Your existing holdings won’t suddenly qualify for a 50% exclusion at year 3, nor do they get a higher cap. They’re grandfathered under the pre-OBBBA QSBS law. However, any new stock issuances or equity grants moving forward can potentially fall under the new and improved post-OBBBA QSBS regime.

It’s worth noting that the 2025 QSBS tax changes and the law also guards against attempts to convert or “refresh” existing stock to make it qualify for the new benefits. For example, you generally cannot exchange your pre-OBBBA QSBS for new stock just to restart the holding period under the new rules, nor can you sell and reinvest proceeds in new QSBS via a Section 1045 rollover to try to obtain the 3-year/4-year exclusions. Such transactions won’t circumvent the holding period requirement changes.

Essentially, only fresh capital or stock issued moving forward gets the new treatment. This ensures the incentive is directed at new investments in small businesses (as intended), rather than providing a retroactive windfall on past investments.

One Big Beautiful Bill Act QSBS: Planning Opportunities and Considerations

These new QSBS tax changes present several planning opportunities, as well as some pitfalls to navigate for founders and investors gearing up for an exit or secondary liquidity. Here are key considerations and strategies in light of the new law:

• Earlier Liquidity with Partial Tax Relief: The introduction of 3- and 4-year exclusion tiers creates flexibility for investors who may need to exit or de-risk sooner. Instead of feeling locked in for five years, you could consider selling a portion of your shares after the 3-year mark knowing that 50% of the gain will be tax-free. For example, venture fund managers might facilitate secondary sales for LP liquidity after year 3 or year 4, since a 50% and 75% exclusion is now on the table. Founders and employees can also entertain tender offers or buyouts a bit earlier without forfeiting the QSBS benefit entirely. Of course, the full 100% exclusion at 5+ years is still the ultimate prize and one should still aim for it when possible, given the significant additional tax savings of going from 50–75% excluded to 100%. But the optionality provided by the tiered system is valuable. And we all know it’s hard to time an exit precisely. It may also stimulate more activity in the secondary market for startup shares, as investors weigh the trade-off of cashing out sooner at a lower (or zero) tax cost versus holding longer.
• Model Exit Taxes Early: Incorporate the 2025 QSBS tax changes tiered rates (approximately 14%, 7%, and 0%) into your personal financial waterfall to provide yourself with a clear view of after-tax returns. Don’t forget to include state tax. For secondary sales occurring before the 5-year mark, explore strategies such as earn-outs if it makes sense to potentially extend the timeline and benefit from lower tax rates in the next tier. Note that this requires careful coordination between corporate counsel and tax advisors. it’s also important to note that we don’t recommend letting the tax tail wag the investment decision dog. A bird in hand in an exit is certainly worth two in the bush.
• Maximizing the New QSBS $15M Cap: With a higher per-issuer exclusion limit, QSBS is now even more compelling for large exits. Investors who were bumping against the old $10M cap have an extra $5 million of gain that can be shielded from tax (and even more as inflation pushes the cap upward). Founders expecting a large exit should evaluate strategies to capitalize on this opportunity. One powerful approach we have discussed in other articles is QSBS “stacking”. This involves spreading stock ownership across multiple people or trusts before an exit so that each taxpayer can use their own $15M exclusion. Gifting shares to a family member or trusts (e.g. non-grantor trusts) is a common technique to multiply the QSBS benefit. Under the previous cap, a founder could shield $10M on their own, but by gifting additional shares to, say, two trusts, potentially exclude $30M ($10M ×3). Now, with a $15M cap, that same approach could exclude $45M or more tax-free (3 × $15M) if executed properly. Example: A founder anticipating $45M of QSBS gain could gift $15M worth of stock each to two trusts for their children, while retaining $15M personally. Each stock holder (the founder and each trust) can then exempt $15M of gain, so the entire $45M exit is federal tax-free. Such planning must be done well in advance of a sale and with professional guidance (to navigate gift tax, trust setup, and QSBS qualification for each). But the larger cap makes it even more worthwhile. Note: The $15M limit applies per individual or trust per company, so stacking works best when you have multiple taxpayers to allocate shares to. You cannot claim more than $15M yourself on the same company (the law’s coordination rules make sure of that).
• Sequence Sales to Optimize Exclusions: If you happen to own both old-rule and new-rule QSBS in the same company (e.g. you invested/own pre-OBBBA QSBS in earlier and also in post-OBBBA QSBS round), pay attention to how you sequence your stock sales. Pre-2025 shares are capped at aggregate $10M and post-2025 at aggregate $15M (but not additive), it could be advantageous to sell the older QSBS first By using the $10M exclusion on the pre-OBBBA stock in one year and then selling the post-OBBBA stock in a later year, you might unlock the additional $5M exclusion on the new stock the next year In contrast, if you sold the new QSBS first, you’d hit the $10M cap and potentially not be able to use the extra $5M that the old shares had (getting effectively capped at $10M total). The specifics can get tricky due to the anti-double-dip rules, so work with a professional advisor to plan the timing of liquidity events when you have multiple tranches of QSBS. The goal is to maximize the total tax-free gain across all your holdings in the company without exceeding the limits in a single year. Also, to prevent confusion use tags in Carta or equivalent equity software to track pre-OBBBA and post-OBBBA stock.
• More Companies Qualify – Recheck Eligibility: With the asset test raised to $75M as one of the 2025 QSBS tax changes, some companies that previously lost the ability to issue QSBS, might now qualify for new issuances. Founders should revisit their company’s QSBS eligibility before the next fundraising. If your startup hovered around or above $50M in assets, the new law gives additional breathing room. This means later-stage funding rounds could potentially be structured to issue QSBS to investors, whereas before you might have been disqualified. Similarly, if you’re an investor considering a growth-stage startup, inquire about whether the round can be treated as QSBS under the higher threshold. Ensuring that the company’s gross assets are under $75M at issuance (and meeting the active business criteria) could unlock significant tax savings down the road for all parties. Founders might coordinate with their finance and legal teams to document asset valuations carefully around the time of issuance, considering the new threshold. The bottom line: more startups in capital-intensive fields will now fit the “small business” definition for QSBS, expanding opportunities to utilize this tax break. This can be a selling point when negotiating with investors (e.g., venture capital funds) because QSBS eligibility effectively boosts their after-tax returns on a successful exit. For investors who prefer later-stage companies, where much of the initial early failure risk has diminished. A Series B round investment, for example, that qualifies for QSBS can be an attractive option.
• Significant Development for QSBS Option Holders: When you exercise stock options after July 4, 2025 and receive qualified small business stock (QSBS), the shares do indeed qualify as “new” QSBS under the One Big Beautiful Bill Act (OBBBA) with all the enhanced benefits that come with it. This is a significant development for option holders because the holding period for QSBS begins at the moment you exercise your options and receive the actual shares, not when the options were originally granted. Under the new rules, if you exercise options on or after July 4, 2025, your shares are eligible for the enhanced QSBS treatment, which includes a tiered gain exclusion system that allows you to exclude 50% of capital gains after holding the stock for just three years, 75% after four years, and 100% after five years. Additionally, the per-issuer gain exclusion cap increases from $10 million to $15 million (with inflation adjustments starting in 2027), and the company’s aggregate gross assets limit rises from $50 million to $75 million. However, it’s crucial to note that all other Section 1202 requirements still apply – the company must be a domestic C-corporation, meet the active business test, and satisfy other qualifying criteria. The key distinction is that only stock issued through option exercises completed after July 4, 2025 receives the new favorable treatment, while exercises before that date remain subject to the original QSBS rules.
• QSBS and State Tax: While we focus on federal law (OBBBA is federal), remember that state tax treatment of QSBS varies. Some states (like California and New Jersey) do not conform to the federal QSBS exclusion or have their own caps, whereas others follow the federal rules fully and will also have no state tax. The OBBBA’s changes are federal, so even if you get a 100% federal gain exclusion, you might still owe state capital gains tax depending on your state of residence or where the business operates. High-growth company founders in non-conforming states (California, for instance) should be mindful that these QSBS benefits, as great as they are, may only apply to federal taxes. That said, many states do mirror the federal QSBS rules, so the expanded benefits could help at the state level too in those jurisdictions.
• Continue Leveraging 1045 Rollovers if Needed: The new 3- and 4-year partial exclusions provide a nice safety net if you sell early, but what if you’re only two years in and don’t even meet the 3-year minimum? Or what if you strongly prefer to defer and aim for 100% exclusion later? Section 1045 rollovers are still available. This existing provision lets you reinvest proceeds from a QSBS sale into new QSBS within 60 days, deferring the gain. The OBBBA didn’t modify 1045, so it remains a strategy for those who exit very early or who want to maintain the possibility of a full 100% exclusion by essentially “tacking” part holding periods together. You could sell QSBS before 3 years, roll into another startup’s QSBS, and continue the holding period toward the 5-year mark on the new stock. Keep in mind, the law ensures you can’t abuse 1045 to get the partial exclusion (you won’t, for example, get to count the rollover period to suddenly qualify for a 50% exclusion. It’s either use 1045 to defer or claim the exclusion on a taxable sale, not both. Nonetheless, 1045 remains an important planning tool especially if market conditions force an earlier exit than anticipated.
• Estate & Gift Planning Alignment: High-net-worth founders should also note that OBBBA made the increased federal estate/gift tax exemption permanent (roughly $15 million per individual in 2026, indexed). This larger exemption pairs nicely with QSBS planning. For instance, you can gift QSBS shares to family members or trusts up to those high exemption amounts without incurring gift tax, allowing you to shift future gains out of your estate and let each recipient use their own $15M QSBS exclusion on those shares. The expanded QSBS rules, combined with historically high estate tax exemptions, create a window for founders to transfer substantial wealth tax-efficiently. A popular move is funding non-grantor trusts with QSBS, as mentioned, to utilize multiple exclusions; the new law amplifies the benefit of that. Always work with well versed estate planning professionals on such transfers to navigate complexities and ensure QSBS eligibility is preserved post-transfer (e.g., trusts must be set up properly to qualify as separate taxpayers for QSBS purposes).
• Documentation and Diligence: Finally, founders should proactively document their company’s QSBS status for themselves and investors. Now that the asset threshold is higher and more investors will be interested in QSBS, maintaining clear records is crucial. Keep records of the company’s gross assets around each stock issuance to substantiate the $75M test. Document that the corporation was a C-corp (and not an excluded business like a finance or service business) during the required periods. Investors performing due diligence for a funding round or secondary purchase will likely ask for a QSBS attestation letter about QSBS qualification. With more money at stake (because of the larger exclusions), both sides should be thorough. It’s much easier to preserve QSBS status than to try to fix it later.

Bigger Picture: QSBS in the Post-OBBBA Era

The expansion of QSBS under the OBBBA underscores a policy push to stimulate startup investment and innovation. By allowing earlier liquidity to cash out earlier with partial tax breaks and ultimately exempt even more gain from tax, these changes make investing in startups more attractive and liquid. The hope is that more capital will flow into emerging companies, job creation will be spurred, and founders will be rewarded for building successful businesses.

From a founder’s perspective, QSBS can be a major component of exit strategy and personal wealth planning. If you’re aiming to sell your company or shares, the difference between a fully taxable gain and a largely tax-free gain is enormous.

That said, it’s important to integrate these 2025 QSBS tax changes benefits into a comprehensive plan. Tax laws can change, and while these provisions are “permanent” (no automatic sunset), future Congresses could always adjust them. For now, though, the landscape is clear: as of mid-2025, QSBS offers more than ever. Founders and investors should take action:

• Ensure new stock issuances qualify: If you’re raising capital or granting equity, coordinate with your legal counsel to issue stock that meets the QSBS criteria post-OBBBA (C-corp, under $75M assets, etc.). Don’t inadvertently disqualify your shares.
• Mark your calendars: If you received QSBS after July 4, 2025, note the 3-year and 4-year dates from issuance. Those milestones could be opportunities to consider liquidity events with favorable tax outcomes.
• Educate your stakeholders: Make sure your co-founders, early employees, and investors know about these new QSBS tax changes. They may choose to hold shares longer (or not rush an exit) if they understand that a 5-year hold could mean zero federal tax, or that even at 3–4 years there’s a big break. Conversely, if someone needs liquidity, they might aim to reach the 3-year mark now instead of selling at 2 years.
• Consult advisors for complex strategies: If you are in the fortunate position of expecting over $15M in gains or you want to utilize trusts and family members to spread out gains, get professional advice. Strategies like QSBS stacking, 1045 rollovers, and other advanced planning strategies have many nuances. As we’ve highlighted, the new rules have some traps and anti-abuse provisions. A qualified tax advisor or financial planner can help chart the optimal course and ensure compliance.

In summary, the One Big Beautiful Bill Act has expanded significantly on QSBS incentives for startup founders and investors. Founders and early backers of companies now have greater potential to minimize or eliminate capital gains tax on successful exits, thanks to the shorter required holding periods, larger exclusion amounts, and expanded eligibility. This is a boon to the startup ecosystem and effectively puts more after-tax dollars in the hands of entrepreneurs and investors to reinvest in new ventures or enjoy the rewards of their risk-taking. If you’re a pre-exit founder or investor, make it a priority to incorporate these new QSBS rules into your exit planning and work with someone very familiar with these advanced concepts.

FAQs

How do the new QSBS tax changes impact founders and investors?

The 2025 QSBS tax changes introduce shorter holding periods and larger exclusion amounts, making new QSBS even more beneficial for entrepreneurs and early-stage investors aiming for tax-efficient exits. Key updates include:

• Shorter holding periods: A 50% exclusion after 3 years, 75% after 4 years, and 100% after 5 years.
• Higher exclusion amounts: Increased from $10 million to $15 million, now indexed to inflation.
• Expanded eligibility criteria: Larger companies with up to $75 million in gross assets (indexed to inflation) now qualify, compared to the previous $50 million limit.

These 2025 QSBS tax changes significantly enhance the advantages of QSBS for those looking to optimize their exit strategies.

How long do I need to hold QSBS shares to qualify for benefits?

It depends on when you acquired your shares. Under the pre-OBBBA QSBS rules (before July 4, 2025), a five-year holding period was required after acquiring C-Corp stock to qualify for tax benefits. Under the new QSBS tax changes introduced by the OBBBA (effective July 4, 2025), a tiered liquidity structure has been implemented. Investors can now benefit from a 50% exclusion after just 3 years, a 75% exclusion after 4 years, and a full 100% exclusion after 5 years.

What are the new QSBS rules and their benefits?

The new QSBS rules, introduced by the OBBBA and taking effect on July 4, 2025, bring significant updates to benefit investors:

• Tiered Liquidity Structure: Investors can now claim a 50% tax exclusion after 3 years, 75% after 4 years, and a full 100% exclusion after 5 years.
• Higher Exclusion Limits: The tax exclusion cap has increased from $10 million to $15 million and is now indexed to inflation.
• Expanded Eligibility: Companies with up to $75 million in gross assets (up from $50 million) are now eligible, with this threshold also indexed to inflation.

These new QSBS tax changes aim to provide greater incentives and flexibility for investors while expanding opportunities for larger companies.

If I exercise options, do they count under the new QSBS rules?

Exercising options after OBBBA (July 4th, 2025) qualifies as a triggering event under the new QSBS rules. This means that if you exercise your options and hold them for at least 3 years, you may be eligible for QSBS exclusion benefits: 50% after 3 years, 75% after 4 years, and 100% after 5 years assuming you meet all the other criteria and the company meets the gross asset test wich is now $75million under the new QSBS rules.

How do the new QSBS tax changes impact startup companies?

The new QSBS tax changes could significantly benefit startup companies by providing stronger incentives for investors to fund their growth. With higher exclusion limits and expanded eligibility, more investors may be drawn to support smaller companies, offering startups much-needed funding and liquidity options for founders and employees earlier in their journey and potentially within the first five years of operation. This also incentivizes entrepreneurship by reducing financial risks for investors.

Additionally, the possibility of tax benefits after just three years could lead to an increase in acquisitions, creating more opportunities for successful exits for founders, investors, and employees alike. Startups may see heightened interest from venture capitalists and angel investors, particularly in seed to Series B rounds. Previously, many B-stage companies didn’t qualify for such benefits, and investors were hesitant to wait the full five years for tax incentives. With the potential for a tax-incentivized exit in just three years, these changes could breathe new life into the startup ecosystem, encouraging more investment and accelerating growth.

What are the new QSBS rules compared to the old QSBS rules?

Before OBBBA, you needed to hold QSBS for at least five years to qualify for any gain exclusion, with a $10 million cap and a $50 million gross asset test. After OBBBA, for stock issued after July 4, 2025, you can get partial gain exclusion after three years (50%) or four years (75%), the cap increases to $15 million, and the gross asset limit rises to $75 million, with both caps indexed for inflation. Most other eligibility requirements remain unchanged.

Under the new post-OBBBA QSBS rules, these restrictions have been significantly relaxed, making it easier for B-stage companies to qualify. The gross assets test threshold has increased to $75 million.

Can I Convert My Old QSBS to New QSBS?

No, you cannot convert your old QSBS into new QSBS under the OBBBA rules. The updated and more favorable OBBBA QSBS benefits, such as tiered gain exclusions, higher per-issuer caps, and increased asset thresholds, only apply to stock issued after July 4, 2025.

The legislation includes anti-abuse provisions to prevent restructuring or exchanging pre-OBBBA old QSBS into post-OBBBA new QSBS to take advantage of the new rules. Stocks issued before July 4, 2025, will remain under the old rules, regardless of transfers or exchanges.

The only exception is if there’s a valid business reason for new stock issuance, such as a legitimate capital raise. Even in such cases, the anti-abuse rules must be carefully followed.

Can I do a 1045 Rollover from old QSBS into new QSBS to access the shorter holding period?

You can use a Section 1045 rollover to sell your original Qualified Small Business Stock (QSBS) and reinvest the proceeds into new QSBS, thereby preserving your eligibility for the QSBS tax benefits and “tacking” your original holding period onto the new investment. However, this does not shorten the required five-year holding period for the Section 1202 gain exclusion from the old QSBS. Instead, it allows you to defer the gain and continue accumulating the holding period toward the five-year requirement with the new QSBS.

With the new QSBS tax changes, can I still exclude 10x cost/basis?

Yes, you can still exclude the greater of 10x basis or $15 million. For older QSBS, the exclusion remains at $10 million.

What should I do to incorporate QSBS into my exit planning?

Founders and investors planning an exit should work with advisors or legal professionals experienced in QSBS to maximize potential benefits and ensure compliance with the rules.

Can a company founded before the OBBBA was signed issue new QSBS that qualifies under the new rules?

What matters is whether the newly issued stock meets the requirements to qualify as QSBS under the updated rules. For example, a venture-backed C-corp that qualified to issue QSBS may have issued a Series A round a year or two ago under the pre-OBBBA QSBS rules. If the company now raises a Series B round and still meets the gross asset test (less than $75 million) along with other QSBS qualifications, the new stock can qualify under the updated rules.

Will states adopt the new QSBS rules?

States either conform to the federal rules or establish their own. For example, New York conforms to the federal regulations, while California does not. If you live in a conforming state, these benefits will also apply at the state level.