The One Big Beautiful Bill Act: What Changed for QSBS

Three significant changes to Section 1202 that every founder should understand.

The One Big Beautiful Bill Act (OBBBA), signed into law in July 2025, made three meaningful changes to the QSBS exemption under Section 1202. These changes apply only to stock issued after July 4, 2025 — stock issued before that date continues to follow the original rules.

For a complete overview of QSBS planning fundamentals, see our comprehensive guide to QSBS exemption and strategic planning.

The Three Key Changes

CHANGE 1

Exclusion Cap: $10M → $15M

The per-taxpayer exclusion cap increases from $10 million to $15 million (or 10x adjusted basis, whichever is greater). For founders pursuing stacking strategies, each trust now shelters $15M instead of $10M — a 50% increase in per-bucket capacity.

CHANGE 2

Gross Asset Limit: $50M → $75M

The maximum aggregate gross assets at time of stock issuance increases from $50 million to $75 million. This means companies can raise more capital before crossing the threshold — particularly significant for later-stage startups issuing employee grants after large funding rounds. Check your company's eligibility with our interactive checklist.

CHANGE 3

Tiered Holding Period

The previous all-or-nothing 5-year requirement is replaced with a graduated schedule:

< 3 years

3 years

50%

4 years

75%

5+ years

100%

See our Holding Period & Exclusion Rules page for a detailed visual comparison.

The 28% Rate Trap on Partial Exclusions

The tiered holding period introduces an important nuance that founders should understand before celebrating the flexibility: gain excluded at the 3-year (50%) or 4-year (75%) tier is taxed at a higher capital gains rate of 28% rather than the standard 20% long-term capital gains rate.

What this means in practice

On a $10M gain sold at 3 years: 50% ($5M) is excluded, but the remaining $5M is taxed at 28% instead of 20%. That's $1.4M in tax on the non-excluded portion, compared to $1.0M at the standard rate — an extra $400K. The exclusion still provides a net benefit, but it's not as clean as the 5-year full exclusion.

For most founders, the optimal strategy remains holding for 5 or more years to achieve the full 100% exclusion at the standard rate. The tiered structure is best understood as a safety net for earlier exits, not an invitation to sell sooner.

What Didn't Change

Several important aspects of Section 1202 remain the same under the OBBBA:

C corporation requirement — Only C corps can issue QSBS
Original issuance rule — Stock must be acquired directly from the company
80% active business requirement — Company must use at least 80% of assets in active business
Excluded industries — Service businesses in health, law, finance, consulting, etc. remain ineligible
Per-taxpayer exclusion — QSBS stacking through non-grantor trusts remains fully available
State conformity — California and other non-conforming states still tax QSBS gains at the full state rate
Gift tax implications — Gifting shares to trusts still requires proper valuation and consumes lifetime exemption

Which Rules Apply to Your Stock?

The date your stock was issued determines which rules govern — not the date you sell. This creates a clear dividing line:

STOCK ISSUED ON OR BEFORE JULY 4, 2025

$10M exclusion cap
$50M gross asset limit
5-year all-or-nothing holding period

STOCK ISSUED AFTER JULY 4, 2025

$15M exclusion cap
$75M gross asset limit
Tiered holding period (3/4/5 years)

Founders who incorporated before July 2025 but haven't issued all employee grants may have a window: grants issued after the OBBBA effective date can qualify under the new, more generous rules — as long as the company's gross assets remain under $75M at the time of issuance.

Impact on QSBS Stacking Strategies

The higher $15M cap amplifies the value of stacking. A founder who creates 4 non-grantor trusts now has 5 exclusion buckets at $15M each — sheltering up to $75 million in gains, compared to $50 million under the old rules.

Use our QSBS Stacking Calculator to model both pre-OBBBA and post-OBBBA scenarios for your specific situation. The tool automatically applies the correct cap based on the stock era you select.

Planning note: The OBBBA changes reinforce the importance of working with experienced counsel.