What’s New for QSBS?
Faster Timeline to Tax-Free Gains
Historically, taxpayers needed to hold QSBS for at least 5 years to qualify for any tax exclusion — a timeline that often mismatched the lifecycle of modern startups.
Now, for QSBS acquired after the law’s enactment:
3 Years = 50% Exclusion
4 Years = 75% Exclusion
5+ Years = 100% Exclusion
This accelerates the tax benefit timeline and provides founders more optionality in structuring 3–5 year exits.
Bigger Lifetime Cap on Tax-Free Gains
Previously, the QSBS lifetime gain exclusion was capped at $10 million per taxpayer, per issuer.
Now, for new stock:
$15 million lifetime cap (indexed for inflation beginning in 2027)
$10 million still applies to older QSBS shares
Anti-double-dipping rules apply for taxpayers holding both old and new stock
This is a game changer for founders holding larger stakes or participating in multiple rounds of investment in the same company.
More Startups Qualify
The gross assets test — which determines whether a business qualifies as a “small business” — has increased:
Old rule: $50 million
New rule: $75 million, also indexed for inflation
This expands eligibility to more late-stage or VC-backed startups, especially those on the verge of Series B/C raises.
Strategic Planning Opportunities
Track Acquisition Dates Carefully
The new holding period and higher cap only apply to QSBS acquired after the law was enacted (July 2025). You’ll need to track pre- and post-enactment stock separately, especially if you participated in multiple rounds.
Stack the Exclusion Across Shareholders
QSBS is a per-person, per-issuer exclusion. With proper planning, families can multiply the benefit:
Allocate equity to a spouse
Gift shares to non-grantor trusts
Fund Trump Accounts for children (post-strategy)
Structure employee incentives for long-term holding
Plan Your Exit Around Milestones
You now have multiple QSBS breakpoints:
Plan for a 3-year exit to capture partial exclusion
Defer liquidity to hit 5-year 100% exclusion if tax savings are substantial
Coordinate with other deductions (like NOLs or bonus depreciation) to minimize additional tax impact
Combine With Opportunity Zones or R&D Credits
QSBS gains remain one of the few ways to permanently exclude federal tax on millions of dollars of appreciation. When combined with:
Opportunity Zone deferral and step-up strategies
R&D credit planning
Stock option or 83(b) election modeling
…you can build a customized tax blueprint that maximizes both short-term liquidity and long-term wealth transfer.
Key Reminders
QSBS still requires a domestic C corporation — S corps, LLCs, and partnerships don’t qualify
Stock must be original issue (no secondary shares)
Company must be an active business, not a holding company or passive investment vehicle
Final Thoughts
If you’re a startup founder, early-stage investor, or small business owner with big exit plans — the enhanced QSBS rules could mean the difference between a 6-figure and a 7-figure tax bill.
Want to model how QSBS fits into your equity and exit strategy? Let’s talk — we can review your cap table, holding period, and timing options to maximize the tax-free upside.