July 8, 2025  

On July 4, 2025, President Trump signed into law the One Big Beautiful Bill Act (BBB) that significantly expands the benefits available for qualified small business stock (QSBS).  This is important news for any founder or early-stage investor.

The QSBS exemption is intended to encourage investments in start-up businesses by allowing founders and investors in certain start-up companies that are C corporations to exclude up to 100% of the gain upon the sale or exchange of QSBS.

Summary of Changes to the QSBS Rules

Modification of the 5-year Holding Period to allow for a Tiered Gain Exclusion

• Prior Law: In order to qualify for the QSBS exclusion, the taxpayer must hold the QSBS for more than five years.
• BBB: The BBB establishes a tiered gain exclusion for QSBS issued after July 4, 2025 (the Enactment Date). There is a 50% exclusion for QSBS held for at least three years (but less than four years), a 75% exclusion for QSBS held for at least four years but less than five years, and a 100% exclusion for QSBS held for at least five years.

Increase in the Per-Issuer Cap

• Prior Law: Generally, the amount of gain eligible for exclusion was the greater of $10 million or 10 times the taxpayer’s tax basis in the QSBS issued by such corporation.
• BBB: Under the BBB the amount of gain eligible for exclusion, with respect to QSBS issued after the Enactment Date, is the greater of $15 million or 10 times the taxpayer’s tax basis in the QSBS.

Increase in the Aggregate Gross Asset Limitation

• Prior Law: The gross assets of the issuing corporation must not exceed $50 million at any time prior to or immediately after such issuance (Gross Asset Limitation).
• BBB: The BBB increases the Gross Asset Limitation to $75 million for QSBS issued after the Enactment Date, along with future adjustments for inflation.

Key Takeaways

• The tiered holding period allows taxpayers to exit an investment after as little as three years and still exclude a portion of the gain under the QSBS rules.
• Increasing the Gross Asset Limitation to $75 million will allow later stage start-ups to take advantage of the QSBS rules and may impact at what stage partnerships convert into corporations to take advantage of the QSBS rules.
• The new rules apply to QSBS issued after the Enactment Date. Founders and investors should identify blocks of QSBS issued before and after such date and be mindful of its holding period upon its disposition to maximize tax efficiency.
• Similarly, founders and investors should be mindful of the sequence in which they dispose of QSBS acquired before and after the Enactment Date in order to maximize the utilization of the $15 million per issuer cap.

Questions?

Now is an opportune time to assess your QSBS planning strategies. Reach out a Tax Partner at CFDB to discuss how you can take advantage of the expanded QSBS benefits provided under the BBB.

Andrew Szymulanski
Partner, Chicago

Direct: +224.216.6620
aszymulanski@crokefairchild.com

Julie Rhoades
Partner, Detroit

Office: +312.650.8650

jrhoades@crokefairchild.com

David K. Salamon

Partner, New York

Direct: +1.646.832.5583

dsalamon@crokefairchild.com