What Changed for QSBS on Stock Issued After July 4, 2025?
Sam's List Editorial | 2026-08-31
The short answer: qualified small business stock acquired after July 4, 2025 gets a new tiered exclusion at three, four, and five years, a per-issuer cap of $15 million instead of $10 million, and a company asset ceiling of $75 million instead of $50 million. Stock acquired on or before July 4, 2025 keeps the old rules entirely.
These QSBS changes came from the tax law enacted on July 4, 2025, which amended Internal Revenue Code section 1202. If you hold founder shares, early employee stock, or a seed position, the date on your stock certificate now determines which set of rules applies to you.
Here is what actually changed, what did not, and the record-keeping problem this creates.
The QSBS Rule Before the 2025 Changes
Section 1202 lets a non-corporate taxpayer exclude gain on the sale of qualified small business stock. Under the pre-July-2025 rules, that meant a five-year holding period, all or nothing: hold five years and exclude up to the greater of $10 million or 10 times your basis in that company's stock, sell at four years and eleven months and exclude nothing. The company had to be a domestic C corporation with aggregate gross assets of $50 million or less at the time the stock was issued, running an active qualified trade or business.
That structure produced a specific and slightly absurd behavior: founders refusing perfectly good acquisition offers because they were fourteen months from the cliff.
Change 1: A Tiered Exclusion Replaces the Five-Year Cliff
For stock acquired after July 4, 2025, the exclusion phases in:
| Holding period | Gain exclusion |
|---|---|
| At least 3 years, less than 4 | 50 percent |
| At least 4 years, less than 5 | 75 percent |
| 5 years or more | 100 percent |
The five-year full exclusion survives. What is new is that an earlier exit is no longer worth zero.
This is the change with the most practical effect on behavior. An acquisition offer at year three used to be a purely taxable event. Now it carries partial relief, which changes the calculus on whether to negotiate a delay.
Two cautions. First, a partial exclusion means the non-excluded portion is still taxable, and the taxable slice of section 1202 gain has its own treatment that is worth working through with a preparer rather than assuming a standard capital gains rate. Second, the tiers apply only to post-July-4-2025 stock. Older stock is still all or nothing at five years.
Change 2: The Per-Issuer Cap Rises to $15 Million
The dollar limitation on excludable gain per issuer moved from $10 million to $15 million for stock acquired after July 4, 2025, and the $15 million figure is indexed for inflation beginning in 2027.
The alternative limitation, 10 times the taxpayer's basis in the stock, remains available. For most founders with nominal basis, the dollar cap is the binding one. For an investor who put real money in, the basis multiple can be far larger and is often the more relevant number.
Change 3: The Company Asset Ceiling Rises to $75 Million
A company qualifies as a qualified small business only if its aggregate gross assets stayed at or below the ceiling through the time the stock was issued. That ceiling moved from $50 million to $75 million for stock issued after July 4, 2025, also indexed from 2027.
This one matters most at the company level rather than the shareholder level. A startup that raised enough to cross $50 million in gross assets used to stop being able to issue QSBS-eligible stock at that point. The higher ceiling extends the window, which means later employees and later rounds at some companies can now qualify where they previously could not.
Note the mechanics: the test looks at gross assets, which includes cash from a financing round, and it is measured around the time of issuance. Raising a large round can push a company over the line quickly.
What Did Not Change
Everything else. The requirements that trip people up are still there.
The company must be a domestic C corporation, both when the stock is issued and substantially throughout the holding period. An LLC that converts to a C corp starts the clock at conversion.
The stock must be acquired at original issuance from the company, for cash, property, or services. Buying shares from another shareholder on a secondary does not produce QSBS for the buyer.
At least 80 percent of assets must be used in an active qualified trade or business, and whole categories are excluded, including most professional services, financial services, hospitality, and farming.
The redemption rules remain a live trap. Certain company stock repurchases from the shareholder or from related parties, within defined windows before or after issuance, can disqualify the stock. This surprises people in ordinary tender offers and buyback situations.
And state treatment varies. Some states conform to section 1202, some partially, and some not at all, so a federal exclusion does not automatically mean a state one.
The Record-Keeping Problem Nobody Mentions
Here is the practical consequence of a date-based rule change. If you hold stock in one company acquired both before and after July 4, 2025, you now hold two different tax instruments that look identical in your cap table.
Each block has to be tracked separately: its issuance date, its basis, which cap applies, and which holding-period rule governs. Exercising options across the date line, participating in multiple rounds, or receiving stock through more than one grant all create this situation.
The time to document it is now, while the paperwork exists and people remember. Reconstructing issuance dates and gross asset values years later, during a transaction with a deadline, is where eligibility gets lost.
The other piece worth collecting early is the company's own confirmation of QSBS status at issuance, including gross assets at the relevant time. Companies are generally not obligated to provide it, and asking after an acquisition closes rarely goes well.
Getting the QSBS 2025 Changes Reviewed by Someone Who Sees Them Often
Section 1202 is one of the most valuable provisions available to founders and one of the easiest to lose on a technicality that had nothing to do with the exit itself.
OLarry is a private client tax firm working with emerging wealth and high net worth and ultra high net worth individuals, based in California and serving clients nationwide. It was founded in 2024, has grown to 39 employees, and lists QSBS holders among its stated client specialties alongside SMB owners, solopreneurs, and digital nomads, with CPA credentials on the team.
OLarry has 7 verified client reviews on Sam's List as of 2026-08-30. Each review is submitted by an individual who identifies as a client of the firm and rates it on communication, subject-matter knowledge, and overall satisfaction. Reviews reflect those individual experiences, do not represent an endorsement by Sam's List, and are not indicative of future results.
The firm sets minimums of $1 million in income and $1 million in revenue, so it is aimed at founders and holders already at meaningful scale rather than at the pre-seed stage, and concierge tax work costs more than compliance-only filing. No advisor can make ineligible stock eligible after the fact, which is the entire argument for reviewing this before a transaction rather than during one.
If you hold stock issued on both sides of July 4, 2025, the first task is separating the blocks. Compare firms with QSBS and equity tax experience, including their specialties and verified reviews, in the Sam's List accountant directory.
Frequently Asked Questions
Do the new QSBS rules apply to stock I already owned? No. The tiered exclusion, the $15 million cap, and the $75 million gross asset ceiling apply only to stock acquired after July 4, 2025. Stock acquired on or before that date keeps the prior rules: a five-year holding period for a full exclusion, a $10 million cap, and a $50 million asset ceiling.
Can I get a partial QSBS exclusion at three years now? For stock acquired after July 4, 2025, yes: 50 percent at three years, 75 percent at four years, and 100 percent at five. For stock acquired earlier, no. The pre-existing rule is still all or nothing at five years, so an earlier sale of older stock excludes nothing.
What is the QSBS gross asset limit in 2026? For stock issued after July 4, 2025, the company's aggregate gross assets must not have exceeded $75 million at or immediately after issuance, up from $50 million. The figure is indexed for inflation beginning in 2027. Gross assets include cash on hand, so a large financing round can push a company past the limit.
What disqualifies stock from QSBS treatment? Common disqualifiers include the company not being a domestic C corporation, acquiring shares on a secondary rather than at original issuance, the business falling into an excluded category such as most professional or financial services, failing the 80 percent active business test, and certain company redemptions within the defined windows around issuance. Eligibility is fact-specific and worth confirming in writing.
About the author: Kimberly Green is the cofounder of Sam's List, where business owners and high earners find vetted CPAs, financial advisors, and fractional CFOs. She's met one-on-one with 400+ financial professionals and writes from the real data behind thousands of client-advisor matches. Ask her anything about finding an accountant - she's heard it all, including the questions people are afraid to ask.