Expanded Tax Breaks: Qualified Small Business Stock (QSBS)

Written by Chris Clark, CPA | Oct 07, 2025

The One Big Beautiful Bill Act (OBBBA) includes a big update for founders, early investors, and growing companies: the Qualified Small Business Stock (QSBS) exclusion has been expanded.

This change opens up more opportunities for entrepreneurs and investors to receive significant tax breaks when they sell stock in qualifying small businesses.

Here’s a breakdown of what changed and how it could shape future growth strategies.

What Was the QSBS Exclusion Before?

Qualified Small Business Stock is a tax planning tool for business owners and investors in eligible C corporations. Before the new law was passed, the QSBS exclusion offered up to 100% exclusion from capital gains tax on the sale of stock, as long as the following requirements were met:

The stock had to be held for at least five years.
It had to be acquired directly from the company (not from another shareholder).
The company’s gross assets had to be under $50 million at the time the stock was issued.
At least 80% of the company’s assets had to be used in the active operation of a qualified trade or business.
The gain exclusion was capped at the greater of $10 million or 10 times the taxpayer’s basis in the stock.
Partial exclusions (50% or 75%) triggered alternative minimum tax (AMT) preference items, which could limit the benefit for some taxpayers.

While these rules were already favorable for many early-stage investors, there were limitations, especially for businesses with fast-growing valuations or investors unable to hold stock for five full years.

What's Changed Under the New Law?

The OBBBA didn’t overhaul the QSBS framework, but it did make it more accessible and flexible. Key updates include:

Tiered Exclusion Timeline	Investors no longer have to wait five years for any exclusion. The time is now: 3 years = 50% gain exclusion 4 years = 75% gain exclusion 5 years = 100% gain exclusion (same as before)
Higher Gain Exclusion Cap	The cap on excluded gain has been raised from $10 million to $15 million, giving qualifying shareholders a larger potential tax break.
Higher Asset Threshold	Companies with up to $75 million in gross assets at the time of stock issuance now qualify (up from $50 million), expanding eligibility to larger startups and growing businesses.
Inflation Adjustments	The $15 million gain cap will be indexed for inflation after 2026. The $75 million asset threshold will be adjusted for inflation beginning in 2027.

One thing to note: These changes apply only to stock issued after the bill’s enactment. Stock issued before the effective date remains under the previous rules.

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What This Means for Business Owners

For founders, early investors, and anyone considering launching or funding a new venture, the expanded QSBS exclusion provides more flexibility, higher potential benefits, and a broader eligibility net.

Here’s how it impacts you:

Shorter Holding Periods are Now Rewarded	If you sell stock after just three or four years, you can still receive meaningful tax exclusions.
Larger Businesses Can Now Qualify	The increased asset limit and inflation indexing provide breathing room for startups that scale quickly.
You May Be Able to Keep More of Your Gains	With a higher cap and no AMT interference, the potential tax savings are more significant, especially for serial entrepreneurs reinvesting gains into new ventures.

What Should Business Owners Do Now?

If you're a business owner, startup founder, or investor looking to take advantage of the expanded QSBS rules, here are a few action items to consider:

Talk to Your Advisors	About whether your business structure qualifies for QSBS treatment. Keep in mind, this only applies to C corporations.
Review Any Plans to Issue New Stock	Particularly if you’re raising capital or offering equity compensation. Stock issued now benefits from the new rules.
Track the Date of Issuance Carefully	The new rules apply only to stock issued after the bill’s enactment, so proper documentation matters.
Evaluate Exit Timing	The tiered approach gives you more options for timing your sale to align with personal and business goals.

A New Chapter for Growth-Focused Businesses

With the changes to the QSBS exclusion, the tax code just got more founder-friendly. Whether you’re launching your first startup or expanding a fast-growing business, these updates give you more tools and incentives to think long-term.

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