Qualified Small Business Stock: 2025 Update

We’ve previously written about Qualified Small Business Stock (QSBS) and the potential tax benefits that come with it if you structure your entity appropriately. The One Big Beautiful Bill Act (OBBBA), which was signed into law on July 4, 2025, expands the tax exemption available for QSBS and now further incentivizes business owners to structure their qualifying companies in a manner that will take advantage of the new rules.

As a short refresher, QSBS is a tax exclusion that allows stockholders to avoid paying taxes on gains recognized from the sale of stock held in a qualifying company. Take a look back at Jon Milgrom’s article here, https://www.milgromlaw.com/entrepreneur-startup/entity-selection-how-qsbs-could-save-you-millions-in-taxes/, for an in-depth review.

The new rules are as follows:

Reduced holding period: Previously, the required holding period for a stockholder to qualify for the QSBS exclusion was five years. The updated rules now pro-rate the tax incentive with a 50% exclusion being available after just three years. The incentive then increases to a 75% exclusion after four years, with the full 100% exclusion available after five years.

Increased exclusion cap: The previous cap on gains which are excluded from taxation under the rule was the greater of $10,000,000 ($5,000,000 for married taxpayers filing separately) or 10 times the taxpayer’s basis in the QSBS. This has now increased to the greater of $15,000,000 ($7,500,000 for married taxpayers filing separately) or 10 times the taxpayer’s basis in the QSBS significantly increasing the amount of potentially non-taxable gain.

Increased gross assets limit: Before these changes, companies were required to remain below $50,000,000 in gross assets at the time of a stock issuance to be QSBS-eligible. That limit has now increased to $75,000,000 which will expand the range of companies eligible for the incentive and may allow companies to implement QSBS structures later in their life cycle.

Business owners should be aware of these changes, noting that they are not retroactive and apply only to QSBS acquired after July 4, 2025. Entity selection and structure remain an integral part of how you maximize benefits for you and your stockholders. The incentives offered by QSBS remain valuable and should be considered when deciding how best to form or reorganize your company.