QSBS: What is QSBS 2.0?
This week’s question: What are the new Qualified Small Business Stock (QSBS) rules and why should founders care?
Context: On July 4, 2025, the One Big Beautiful Bill Act (OBBBA) became law and expanded QSBS for stock issued after July 4, 2025. For this post, we’ll refer to these new regime as QSBS 2.0.
Our answer: QSBS remains one of the most early investor and founder friendly tax benefits, and the OBBBA’s QSBS 2.0 is now even more attractive and beneficial for early-stage stockholders. If your startup and shares qualify under the new rules, (i) you can exclude up to the greater of $15M (to be inflation-indexed starting in 2027) or 10x basis of gain, (ii) you have a tiered holding period that allows a partial exclusion of 50% after 3 years, 75% after 4 years, and 100% after 5 years, and (iii) your startup can have up to $75M in gross assets at the time of issuance. With QSBS 2.0’s much higher limits, greater flexibility in qualifying, and potentially millions more in potential tax savings, QSBS-eligibility is even more important for founders and early investors.
Key Considerations
Much Remains the Same. Much of the original QSBS regime stay the same: (i) only stock originally issued by in a US C-corp qualifies, (ii) at least 80% of assets must be used in active business and (iii) the startup must be engaged in a qualified fields (e.g. tech, manufacturing, etc).
July 4, 2025. Keep in mind that QSBS 2.0 only applies to issuances after July 4, 2025, so if you were issued QSBS-eligible stock on or before July 4, 2025 your stock is still subject to the old regime.
Major Changes. There are three major changes to QSBS 2.0:
Tiered Holding Period. The holding period requirement which was previously a straightforward 5-years is now tiered so that you get 50% exclusion after 3 years, 75% after 4 years, and 100% after 5 years.
Exclusion Cap. The limit on exclusion per taxpayer increased 50% from $10M to $15M (or 10x basis), and is also pegged to inflation starting in 2027 so the cap should continue to increase gradually over time.
Gross Assets. Your startup must now have no more than $75M in aggregate gross assets immediately before or after the qualifying issuance, representing a 50% increase from the prior $50M threshold.
State Law. The OBBBA doesn’t affect state laws regarding QSBS 2.0, so some states (e.g. California, New Jersey and Pennsylvania) still disallow the exclusion and you may owe state income tax on the gains.
Why It Matters
Higher caps and a shorter, tiered holding period make QSBS 2.0 more accessible, especially with benefits kicking in after just 3 years. However, missing eligibility still means you could be stuck writing a very large check to the IRS (and maybe your state) that planning and awareness could have avoided. As a result, nailing the basics early (e.g. proper entity form, timing, gross-assets records, state strategy, etc) means unlocking the even greater potential windfalls of QSBS 2.0.
