Deep Dive: The New QSBS Landscape After OBBBA

How OBBBA Reshapes Tax Planning for Founders, Investors & Counsel

On July 4, 2025, the One Big Beautiful Bill Act (“OBBBA”) became law, driving the most meaningful expansion of Qualified Small Business Stock (QSBS) benefits in years. This change holds great significance for founders, investors, early employees—and the lawyers who support them. QSBS has long been one of the most powerful tax incentives available in the U.S.: it enables qualifying shareholders to exclude up to 100% of capital gains from the sale of eligible stock. With the OBBBA overhaul, that benefit is now more accessible and more attractive.

Breakdown:

Tiered Holding Period = More Flexible Liquidity Planning

Pre-July 4, 2025: A full 5-year holding period was required for a 100% exclusion.

Post-July 4, 2025 (for stock issued after that date):

• 3+ years → 50% exclusion
• 4+ years → 75% exclusion
• 5+ years → 100% exclusion

Why it matters now

• Founders and investors can contemplate earlier exits without fully sacrificing tax benefit.
• M&A strategies become more agile—holding period lock-in is less restrictive.
• Lawyers must track issuance dates and holding periods with greater precision.

Higher Exclusion Cap = More Tax-Free Upside

Old regime: Greater of $10 million or 10× basis

New regime (for post-OBBBA stock):

• $15 million cap per issuer
• Inflation index starts in 2027
• 10× basis remains available if higher

Why it matters now

• Major exits-especially in fintech/Al/cleantech—now translate to higher after-tax proceeds.
• Equity compensation and investor modelling must reflect this enhanced upside.
• Lawyers should update term sheets, SPAs, and equity-incentive plans accordingly.

Expanded Gross Asset Threshold = Broader Eligibility

Old threshold: $50 million

New threshold (post-July 4, 2025): $75 million, inflation-indexed from 2027

Why it matters now

• More startups qualify-even those raising larger rounds or scaling fast.
• Fintech, Al, and infrastructure-heavy companies benefit from increased eligibility headroom.
• Counsel must monitor asset-levels and entity structure closely before new issuances.

Strategic Takeaways for Q4 2025

For Founders

• QSBS is now a top-tier capacity to attract investors.
• You have bigger potential tax-free upside and more flexibility.
• Early planning now can reduce risk of losing QSBS eligibility later.

For Lawyers

• QSBS has shifted from niche to core offering in startup legal services.
• Documentation, diligence, and structuring obligations are elevated.
• Offering strong QSBS guidance is now a competitive differentiator in legal counsel for emerging companies.

Practical Tips

Founders & CFOs

• Verify that your company is a C-Corporation (LLCs/S-corps don't qualify).
• Keep precise records of issuance dates, valuations, and board approvals.
• Monitor asset levels heading into 2026 fundraising.
• Incorporate QSBS eligibility in investor decks and due-diligence materials.

For Lawyers

• Create a dedicated QSBS compliance folder for each startup client.
• Insert QSBS representations and covenants into financing documents.
• Raise QSBS early in M&A discussions—tax treatment may impact purchase price.