QSBS News

Amendments to Qualified Small Business Stock (QSBS) in the Title VII Bill Aimed at Spurring Domestic Economic Activity

By

June 16, 2025

The U.S. Senate Finance Committee released legislative text within the Finance Committee’s jurisdiction for inclusion in Senate Republicans’ budget reconciliation bill today.

Chairman Mike Crapo (R-Idaho) noted how the bill,

“powers the economy by permanently extending critical pro-growth provisions and introduces new incentives for domestic investment, providing certainty for American job creators to spur domestic economic activity and invest in their workers.”

While the house version of the bill, the “One, Big, Beautiful Bill” included only a minor modification to the language of IRC Section 1202, Qualified Small Business Stock (QSBS), which was to clarify the treatment of Research and Experimentation costs, the legislative changes introduced in the Title VII Bill by the Senate offer significant amendments to QSBS, reshaping the tax incentive and investment opportunities for startups and small businesses. These modifications aim to enhance liquidity, broaden eligibility, and provide greater flexibility for investors.

Key Amendments to QSBS

Specifially, regarding QSBS, the bill offers the following key amendments.

1. Shortened Holding Period for Tax Benefits Previously, investors had to hold QSBS for five years to qualify for a 100% capital gains exclusion. The new bill introduces a phased approach:

    • 3 years: 50% capital gains exclusion
    • 4 years: 75% capital gains exclusion
    • 5+ years: 100% capital gains exclusion

This adjustment, initially introduced by Congressman Kustoff, makes startup investments more attractive by improving liquidity and encouraging early-stage funding.

2.  Increase in Per-Issuer Dollar Cap The bill raises the per-issuer dollar cap for post-enactment shares to $15 million, indexed to inflation beginning in 2027.

This change enhances the potential tax benefits for investors.

3.  Increase in Corporate-Level Aggregate-Asset Ceiling For stock issued after the applicable date, the corporate-level aggregate-asset ceiling is increased to $75 million (from $50 million previously), also indexed to inflation beginning in 2027.

This expansion allows more businesses to qualify for QSBS treatment, fostering growth and innovation in the startup ecosystem.

Impact on Investors and Entrepreneurs

These amendments are expected to:

  • Accelerate investment cycles, making startup funding more dynamic.
  • Increase liquidity, allowing investors to exit earlier while still benefiting from tax exclusions.
  • Encourage venture capital participation, as the broadened eligibility criteria make QSBS investments more appealing.
  • Support larger-scale startups, with increased asset ceilings enabling more companies to qualify.

With these changes, the Title VII Bill marks a pivotal shift in how QSBS functions, fostering a more robust startup ecosystem.  We will continue to track developments with the bill and whether these changes ultimately are enacted.

 

This article does not constitute legal or tax advice. Please consult with your legal or tax advisor with respect to your particular circumstance.