The 2025 One Big Beautiful Bill Act was filled with tax changes both big and small—but perhaps one of the least-noticed during passage was the expansion of the qualified small business stock tax break.
Since enactment, however, it’s become a focus for many business owners and practitioners who are intrigued by the potential tax savings, as well as the relatively light regulatory framework issued by the Department of the Treasury.
“It really is like the Wild West,” said John Kerrigan, a senior manager of mergers and acquisitions at Eide Bailly. “It's comical, the lack of guidance, for how big of an incentive it is.”
For much of its history, the break didn’t need so much guidance. The tax benefit, under I.R.C. Sec. 1202, was first created by Congress in 1993, with the hope of rewarding investors who take a risk on a small startup. The section offered the owners a limited exemption on capital gains if their stake in the company is sold. While Congress gradually increased the scope of the exemption over the years, until recently it remained relatively modest.
The OBBBA’s changes, however, were a game-changer. Today, investors can shield their federal capital gain on the sale or disposition of the stock for up to a minimum of $15 million if it is held for five years, and can realize a partial exemption as soon as three years after making the initial investment. The OBBBA also raised the gross asset threshold—the allowable size of the company being invested in—from $50 million to $75 million.
By design it rewards smaller and often family-owned firms. But that can raise complications, especially when multiple family members are involved.
One of the biggest issues getting attention from the IRS is “stacking,” or when a current shareholder of QSBS gifts their shares to one or more qualifying trusts for their family member or members, with each trust asserting it can claim its own minimum QSBS benefit of $15 million.
Treasury is expected to release regulations addressing transactions that it views as abusive stacking, but until then taxpayers have been left to guess what positions would be risky.
Some practitioners also argue that married couples filing jointly are both entitled to their own limitation up to $15 million, even as married taxpayers filing separately are limited to only half of the overall amount each.
“That’s another one where people are pushing the envelope,” Kerrigan said.
But while some taxpayers are looking for ways to maximize a transaction with the QSBS benefit, Kerrigan said they should first temper their enthusiasm with some careful scrutiny and modeling about both the benefits and potential costs.
For instance, the QSBS benefit can only be used for a corporation, which isn’t always the optimal form for smaller or self-owned businesses. And the sale must be in shares.
“Everyone’s excited about it, and they’re counting their dollars before the transaction happens,” Kerrigan said. “But people forget that at the end of the day, you have to find a buyer who’s willing to come in and buy stock.”
