Is QSBS Expanding?
The Senate Finance Committee released legislative text as part of its Title VII reconciliation bill that could meaningfully expand and modernize IRC Section 1202, which governs QSBS.
Part of the broader “One Big Beautiful Bill,” this proposal aims to stimulate domestic investment by making early-stage equity more attractive to investors, and more accessible to growing companies. While not yet law, these changes may represent the most substantial enhancements to QSBS in over a decade.
Earlier Access to Tax Exclusions
Currently, QSBS holders must wait five years to qualify for the full 100% capital gains exclusion. The new proposal could implement a phased holding timeline:
3 years: 50% capital gains exclusion
4 years: 75% exclusion
5+ years: 100% exclusion (status quo)
Higher Proposed Cap on Exclusion Amounts
The current cap on tax-free gain is the greater of $10 million or 10x the taxpayer’s basis. The new legislation may raise this cap to $15 million, indexed to inflation starting in 2027. This adjustment would increase the tax savings potential for investors whose QSBS performs exceptionally well.
Stock Issued by Larger Companies Could Qualify for QSBS
To qualify for QSBS, a company’s assets must not exceed $50 million at the time of stock issuance. The Senate bill would increase that threshold to $75 million, also indexed to inflation. This change could open QSBS eligibility to stock issued from more mature, well-capitalized startups.
If these changes are enacted, they would accelerate investment timelines, expand the QSBS-eligible company pool, and make the tax benefits accessible to a wider range of investors. Venture capitalists, founders, and individual shareholders could all benefit from earlier exits, broader eligibility, and larger potential exclusions.
However, these proposals are still subject to the legislative process. As we’ve seen in prior bills, QSBS provisions can be added, removed, or altered significantly before passage, or may not make it into the final law at all.
We’ll continue monitoring this and will share updates as more information becomes available. For now, these proposed amendments are a strong signal that QSBS remains a key policy lever in the eyes of lawmakers aiming to support U.S. innovation and entrepreneurship.
