QSBS after the One Big Beautiful Bill Act works differently than it did before July 4, 2025. For qualifying C corporation stock acquired after that date, the law raised the per-issuer gain exclusion from $10 million to $15 million, lifted the company asset ceiling from $50 million to $75 million, and replaced the flat five-year holding period with a tiered schedule: 50% of eligible gain excluded at three years, 75% at four years, and 100% at five. Stock acquired earlier keeps the prior rules.
This article describes federal tax law for general educational purposes. It is not tax or legal advice. QSBS eligibility is fact-specific, several requirements must be met, and the rules are still awaiting further IRS and Treasury guidance. Confirm the current law and your own situation with a qualified tax professional before acting.
QSBS is qualified small business stock under Section 1202 of the tax code. When the requirements are met, an eligible shareholder can exclude a large share of the capital gain on the sale of that stock from federal income tax. It applies only to stock in a domestic C corporation, and the company has to pass tests on its size and its business activity. For a founder, that can be the difference between handing a meaningful slice of an exit to the IRS and keeping it on your own balance sheet.
This is the tax side of what we call the vanishing-value problem: the gap between what a business is worth on paper and what actually reaches you personally after a sale. Deal structure, preparation, and taxes all decide how wide that gap is. Section 1202 is one of the sharpest tools for narrowing the tax portion of it, which is why it belongs in any serious conversation about converting business value into personal wealth.
The One Big Beautiful Bill Act, signed July 4, 2025, made three changes to Section 1202, all of them for stock acquired after that date. It introduced a tiered holding period, raised the per-issuer exclusion cap, and raised the company asset ceiling. Stock acquired on or before July 4, 2025 stays under the prior rules, so a founder who already holds QSBS has to track older and newer blocks of stock separately. Here is the before-and-after.
| QSBS rule | Stock acquired on or before July 4, 2025 | Stock acquired after July 4, 2025 |
|---|---|---|
| Holding period for a 100% exclusion | More than 5 years | 5 years |
| Partial exclusions | None (all or nothing at 5 years) | 50% at 3 years, 75% at 4 years |
| Per-issuer gain exclusion cap | Greater of $10 million or 10x basis | Greater of $15 million or 10x basis |
| Company aggregate gross-asset ceiling | $50 million | $75 million |
| Inflation indexing | None | $15 million cap and $75 million ceiling indexed in years after 2026 |
Two of those thresholds, the $15 million cap and the $75 million asset ceiling, are set to adjust for inflation in years after 2026, so the numbers become moving targets over time rather than fixed figures.
Yes, for stock acquired after July 4, 2025. The per-issuer cap is now the greater of $15 million or 10 times your adjusted basis in the stock, up from $10 million before. Spouses filing jointly share a single cap, and it splits in half for married filing separately. The cap is measured per company, so a founder holding qualifying stock in more than one C corporation can potentially reach a separate cap for each issuer.
The tiered schedule comes with a tradeoff worth understanding. At the three-year and four-year tiers, only 50% or 75% of the gain is excluded, and the portion that is not excluded is taxed at a 28% federal capital gains rate rather than the usual 20%, plus the 3.8% net investment income tax where it applies. The full 100% exclusion still requires a five-year hold. Shorter windows buy flexibility, not a clean pass.
Qualification is decided by facts that are mostly locked in long before a sale closes, not at the closing table. The stock has to be in a domestic C corporation that had $75 million or less in aggregate gross assets at the time the stock was issued, and you generally must have acquired it directly from the company rather than buying it from another shareholder. The company also has to use at least 80% of its assets in an active qualified trade or business for substantially all of your holding period.
Plenty of businesses do not clear these tests as they stand. Section 1202 excludes many service businesses, including health, law, accounting, consulting, financial services, and similar fields. Companies taxed as S corporations, partnerships, or LLCs do not issue QSBS at all unless they convert to C corporation status first, which starts a fresh holding-period clock. And a number of states do not follow Section 1202, so gain that is fully excluded on your federal return can still be taxed where you live. The honest answer to "does my company qualify" is usually "it depends, and it depends on choices made years earlier."
Section 1202 rewards founders who plan forward instead of file backward. Almost every lever that matters, choosing or converting to a C corporation, starting the holding-period clock, and issuing stock while the company is still under the asset ceiling, is only available before a deal is on the table. By the time a term sheet arrives, most of the QSBS outcome is already set. This is the difference between working with a tax planner, who looks ahead at the strategies that will apply to your situation, and a tax historian, who records what already happened.
There is also a planning move around the cap itself. Because the per-issuer exclusion is measured per taxpayer, some founders use non-grantor trusts, each a separate taxpayer, to hold gifted shares ahead of a sale so more of the gain can fall within separate exclusion amounts. It is a technical strategy, it has to be set up correctly and early, and it sits at the intersection of tax and estate and wealth transfer planning. Getting it right takes a tax attorney, a CPA, and an advisor working from the same plan.
That coordination is the point. A strategy like QSBS pays off only when entity structure, holding periods, trusts, and the exit timeline are managed together rather than in separate silos. Coordinating those moving parts under one plan, well before a sale, is the core of proactive tax planning for entrepreneurs and of the Fractional Family Office® model built around it.