By John T. Murray, CPA, Partner
QSBS: New H.R.1 provisions provide opportunities for tax, estate, and exit planning
Before the 2025 reforms in H.R.1 (formerly the One Big Beautiful Bill Act – OBBBA), the Qualified Small Business Stock (QSBS) rules under Internal Revenue Code Section 1202 allowed investors to exclude up to 100% of capital gains on the sale of qualified stock held for more than five years. Further, to be eligible for exclusion the stock had to be acquired at original issuance from a domestic C corporation with gross assets under $50 million, and at least 80% of the company’s assets had to be used in an active trade or business.
The gain exclusion was capped at the greater of $10 million or ten times the investor’s basis in the stock. Importantly, there was no partial benefit. Investors had to meet the more than five-year holding period to receive the exclusion.
What changed: New QSBS holding period tiers and expanded limits
The OBBBA, signed into law on July 4, 2025, enhanced the QSBS gain exclusion for stock acquired after the Act’s signing date.
- Primarily the change created a tiered gain exclusions based on the following holding periods:
- 50% exclusion after 3 years
- 75% exclusion after 4 years
- 100% exclusion after 5 years
- Additionally, there is an increased per-issuer cap of $15 million with married couples filing separately at a $7.5 million cap. The asset limit has increased to $75 million from $50 million to follow inflation.
QSBS impact on investors
The updated QSBS rules give investors more flexibility in holding their stock. The tiered gain exclusions allow for tax planning around shorter holding periods, making exits at three or four years more attractive.
The higher asset threshold ($75 million) and increased exclusion cap ($15 million) expand access and increase potential tax savings especially for founders and early investors.
These changes create new opportunities for tax, estate, and exit planning but also require closer tracking of eligibility and holding periods to stay compliant. Note that the new law is only for stock acquired after the enactment of the OBBBA starting July 5, 2025.
Is your business prepared to thrive under the new law? This is an ideal time to consult your Keiter Opportunity Advisor | Email | Call: 804.747.0000
Keiter’s Tax and Financial Services Industry teams will share more insights on business tax planning opportunities and updates as the IRS releases guidance.
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About the Author
John T. Murray, CPA, Partner
John provides customized insights and opportunities for fund managers and their clients, and fund administrators in areas such as fund formation and wind-down, tax structuring, complex tax allocations, Series Funds, Fund of Funds, Long-short Funds, Venture Capital Funds, Real Estate Funds and Hedge Funds.
He serves as the tax leader for Keiter’s Financial Services Industry team and is a member of the Mergers & Acquisitions team.
More Insights from John T. MurrayThe information contained within this article is provided for informational purposes only and is current as of the date published. Online readers are advised not to act upon this information without seeking the service of a professional accountant, as this article is not a substitute for obtaining accounting, tax, or financial advice from a professional accountant.
