On July 4, 2025, President Trump signed into law the act referred to as the “One Big Beautiful Bill Act” or “OBBB.” This comprehensive bill includes provisions related to tax policy, federal spending, healthcare, border security, energy, and more. Notably, the OBBB substantially expands provisions that exclude from federal income tax all or a portion of gains from sales of qualified small business stock (QSBS) — a major win for emerging growth companies and venture capitalists. The tax break, which excludes qualified gains on exit events from taxation, previously had a five-year holding period threshold and a gross assets limit of $50 million for the stock of start-up corporations to qualify under Section 1202.

The One Big Beautiful Bill replaces the five-year holding period with a tiered gains-exclusion schedule: starting at three years, 50% of gains can be excluded, followed by a 75% tax exclusion for stock held for four years, and then a 100% tax exclusion at the five-year mark. The tax-free cap has also been raised from $10 million to $15 million or 10x the shareholder’s basis in Section 1202 stock, whichever is greater. The new law also raises the gross asset limit to qualify a startup’s stock under Section 1202 from $50 million to $75 million at the time of the stock’s issuance. The term “aggregate gross assets” means the amount of cash and the aggregate adjusted bases of other property held by the corporation (not the fair market value of other property). Beginning after the 2026 calendar year, the gross assets threshold will be indexed for inflation.

The changes apply only to Section 1202 stock issued after July 4, 2025.