QSBS Recent Changes: OBBBA and 2025 Legislative Updates to Section 1202

Significant changes to Qualified Small Business Stock (QSBS) provisions were enacted in 2025 through legislation commonly referred to as the "One Big Beautiful Bill Act" (OBBBA) or Public Law 119-21. These changes affect eligibility thresholds, exclusion limits, holding period requirements, and exclusion percentages.

This page documents the key changes affecting QSBS and their effective dates.

The Applicable Date: July 4, 2025

Pub. L. 119-21, enacted on July 4, 2025, establishes an "applicable date" that serves as the dividing line between old and new QSBS rules. [IRC §1202(a)(6)(A)]

The applicable date is July 4, 2025—the date of enactment of the legislation.

Stock acquired on or before this date is subject to pre-amendment rules, while stock acquired after this date is subject to the new rules.

Key Changes to QSBS Provisions

1. Increased Gross Asset Threshold

Previous Limit: $50 million

New Limit: $75 million [IRC §1202(d)(1)(A), (d)(1)(B)]

The aggregate gross assets of a qualified small business must not exceed $75 million (increased from $50 million) at all times from August 10, 1993, through the date of stock issuance, and immediately after issuance.

Effective Date: Applies to stock issued after July 4, 2025 [Pub. L. 119-21, §70431(c)(3)]

2. Increased Per-Issuer Exclusion Limit

For Stock Acquired on or Before the Applicable Date:

• Limit remains: $10 million (or 10 times adjusted basis, if greater) [IRC §1202(b)(4)(A)]

For Stock Acquired After the Applicable Date:

• New limit: $15 million (or 10 times adjusted basis, if greater) [IRC §1202(b)(4)(B)]
• Increased from $10 million

Inflation Adjustment: Beginning in 2027, the $15 million amount is adjusted for inflation. [IRC §1202(b)(5)]

Effective Date: Applies to taxable years beginning after July 4, 2025 [Pub. L. 119-21, §70431(b)(4)]

3. Tiered Exclusion Percentages Based on Holding Period

For Stock Acquired on or Before the Applicable Date:

• 50% exclusion if held for more than 5 years [IRC §1202(a)(1)(A)]
• (Special rules apply for stock acquired during specific historical periods—75% for Feb 18, 2009 - Sept 27, 2010, and 100% for stock acquired after Sept 27, 2010)

For Stock Acquired After the Applicable Date: The exclusion percentage now varies based on holding period (the "applicable percentage"):

• 50% exclusion if held for at least 3 years but less than 4 years
• 75% exclusion if held for at least 4 years but less than 5 years
• 100% exclusion if held for 5 years or more [IRC §1202(a)(1)(B), (a)(5)]

Key Change: Stock acquired after the applicable date can now qualify for exclusion after only 3 years (at 50%), rather than requiring 5 years.

Effective Date: Applies to taxable years beginning after July 4, 2025 [Pub. L. 119-21, §70431(a)(6)]

4. Reduced Holding Period Requirement

For Stock Acquired on or Before the Applicable Date:

• Must be held for more than 5 years to qualify for exclusion [IRC §1202(a)(1)(A)]

For Stock Acquired After the Applicable Date:

• Must be held for at least 3 years to qualify for any exclusion [IRC §1202(a)(1)(B)]
• The exclusion percentage increases with longer holding periods (50% at 3 years, 75% at 4 years, 100% at 5 years)

This is a significant change that makes QSBS benefits available sooner for post-applicable date stock.

Summary of Changes Table

| Aspect | Pre-Applicable Date (Stock Acquired ≤ July 4, 2025) | Post-Applicable Date (Stock Acquired > July 4, 2025) | |--------|-----------------------------------------------------|------------------------------------------------------| | Gross Asset Threshold | $50 million | $75 million | | Per-Issuer Limit | $10 million | $15 million | | Minimum Holding Period | More than 5 years | At least 3 years | | Exclusion at 3 Years | Not available | 50% | | Exclusion at 4 Years | Not available | 75% | | Exclusion at 5 Years | 50% (or 75%/100% for certain periods) | 100% |

Effective Dates and Transition Rules

Asset Threshold Increase

• Effective Date: Stock issued after July 4, 2025
• Transition: Stock issued on or before July 4, 2025, remains subject to the $50 million threshold

Exclusion Limits and Percentages

• Effective Date: Taxable years beginning after July 4, 2025
• Transition:
  • Stock acquired on or before July 4, 2025, remains subject to pre-amendment rules
  • Stock acquired after July 4, 2025, is subject to new rules

Inflation Adjustments

• The $15 million per-issuer limit is adjusted for inflation beginning in 2027 [IRC §1202(b)(5)]
• The $75 million asset threshold is adjusted for inflation beginning in 2027 [IRC §1202(d)(1) (second paragraph (4))]

Impact on Existing QSBS

Stock Already Held: Stock acquired on or before July 4, 2025, continues to be subject to the old rules:

• $50 million asset test applies (if not yet issued, but this is retrospective)
• $10 million per-issuer limit
• 5+ year holding period requirement
• Exclusion percentages based on historical acquisition date rules

New Stock Issued: Stock issued after July 4, 2025, is subject to new rules:

• $75 million asset test
• $15 million per-issuer limit (for stock acquired after applicable date)
• 3-year minimum holding period (with tiered percentages)

Planning Implications

For Investors

1. Earlier Access to Benefits: Post-applicable date stock can qualify for exclusion after 3 years instead of 5

2. Higher Exclusion Limits: $15 million per issuer (vs. $10 million) for post-applicable date stock

3. More Companies Qualify: $75 million asset threshold allows larger companies to qualify

4. Graduated Benefits: Tiered exclusion percentages provide partial benefits at 3 and 4 years

For Companies

1. Broader Eligibility: More companies can qualify due to increased asset threshold

2. Extended Qualification Window: Companies can remain qualified longer as they grow

3. Investor Attractiveness: More favorable rules for post-applicable date stock may attract investors

Legislative History

The changes were enacted through Pub. L. 119-21, title VII, sections 70431, enacted on July 4, 2025. [139 Stat. 240-242]

The legislation is commonly referred to as the "One Big Beautiful Bill Act" (OBBBA) in practice, though this may be an informal or colloquial name.

Other Recent Changes (Pre-2025)

For historical context, other significant changes to QSBS provisions include:

• 2010: 100% exclusion for stock acquired after September 27, 2010 (Creating Small Business Jobs Act)
• 2009: 75% exclusion for stock acquired between February 18, 2009, and September 27, 2010 (American Recovery and Reinvestment Act)

Key Takeaways

1. July 4, 2025 is the key date: Stock acquired after this date is subject to new, more favorable rules

2. Asset threshold increased: From $50 million to $75 million

3. Per-issuer limit increased: From $10 million to $15 million (for post-applicable date stock)

4. Faster access to benefits: 3-year minimum holding period (vs. 5 years) for post-applicable date stock

5. Tiered exclusion percentages: 50% at 3 years, 75% at 4 years, 100% at 5 years

6. Inflation adjustments: Both the asset threshold and per-issuer limit adjust for inflation beginning in 2027

Sources and Citations

• Pub. L. 119-21, §70431: Amendments to Section 1202 (July 4, 2025)
• IRC Section 1202(a)(6): Applicable date definition
• IRC Section 1202(d)(1): Gross asset threshold (amended to $75 million)
• IRC Section 1202(b)(4): Per-issuer limits (amended to include $15 million limit)
• IRC Section 1202(a)(5): Applicable percentage table for tiered exclusions

Verification Date: January 2025

Note: This page reflects changes enacted through Pub. L. 119-21 as of January 2025. Tax law changes frequently, and this information should not be construed as legal or tax advice. The "One Big Beautiful Bill Act" (OBBBA) designation is based on common usage and web research; the formal Public Law number is 119-21. Consult with a qualified tax professional regarding your specific situation.