The One Big Beautiful Bill Act (OBBBA) was enacted into law on July 4, including the Senate bill's taxpayer-favorable changes to qualified small business stock (QSBS) benefits under § 1202 of the code. These new changes are effective for investments made after the date of enactment (i.e., from July 5 forward). 

QSBS Changes:

QSBS benefits are expanded in three main ways, applying to stock acquired issued after July 5, 2025 (the “applicable date”):

1. The required holding period for QSBS benefits for stock acquired after the applicable date would be reduced from 5 years to 3 years, with partial benefits phasing in beginning after a three-year holding period.
   • The gain exclusion percentage would depend on the holding period:
     • Taxpayers that hold stock for at least 3 years can exclude 50% of their gain.
     • Taxpayers that hold stock for at least 4 years can exclude 75% of their gain.
     • Taxpayers that hold stock for at least 5 years can exclude 100% of their gain.
   • Example:  Taxpayer acquires QSBS eligible stock after the applicable date, and disposes of the stock three years later for $10 million of gain.  Taxpayer can only exclude 50% of its gain on the sale of shares ($5 million).  
2. $15 million (up from $10 million) of gain from stock acquired after the applicable date could be excluded.
   • Known as the “per-issuer limitation,” a taxpayer's gain excluded from the sale of QSBS acquired after the applicable date would not exceed the greater of:
     • $15,000,000; and
     • 10 times the aggregate adjusted basis of QSBS issued by the corporation and disposed of by the taxpayer.
   • Note that the 10x basis rule does not change, so that the fixed dollar cap would become relatively more attractive.
3. The permitted gross assets limit would increase from $50 million to $75 million.
   • For stock issued after the applicable date, a corporation's “aggregate gross assets” (cash and the tax basis of other property held by the corporation) must not exceed $75 million immediately after the stock is issued (or at any prior time).

The $75 million asset limit and $15 million maximum exclusion would automatically be increased by amounts indexed to inflation beginning in the 2027 tax year.  

The AMT adjustment for QSBS would be repealed for investments made after the 2010 amendment to § 1202. (See § 57(a)(7)).

Section 174 Changes:

At the same time, the OBBBA restored expensing for domestic R&D and software development costs beginning in taxable years after December 31, 2024. The OBBBA also allows small businesses with average annual revenue below certain thresholds to make this change retroactively to 2022.

This change may also be helpful for QSBS by reducing the gross assets of a corporation taken into account in the $50 million / $75 million test, possibly on a retroactive basis for stock issued during the 2022–2024 period.