QSBS just got friendlier
The “One Big Beautiful Bill Act” (still trying to accept that this is really the name) just sweetened an already pretty sweet QSBS tax deal.
Until now, you had to hold qualified small business stock (QSBS) for five years to get the famous 100% capital gains exclusion under Section 1202. Sell earlier than that? No soup for you!
Now:
- 3 years = 50% exclusion
- 4 years = 75% exclusion
- 5 years = 100%
Also: the per-issuer cap jumps from $10M to $15M (with inflation bumps starting in 2026), and the asset threshold for eligibility rises to $75M.
So yes, this will put real money in some founders’ pockets. On a $15M gain, full QSBS wipes out roughly $3.6M of federal long-term capital gains tax, and you can get a $1.8M exclusion at three years. Mazel tov!
I know it won’t make me any friends in the investor community to say it, but here goes: capital gains already get a generous 40% tax discount compared to “ordinary income” — you know, the kind of income ordinary people earn by working for a living. And anyone who’s actually worked with startup founders (like goodcounsel does every day) knows most of them don’t start companies to get rich. They start because they can’t not — they’ve got an idea or vision they have to drag into the world.
Supporters say that QSBS reduces early-stage risk by juicing the returns on winners. Maybe. The real question is whether we’d see less VC money without it — or if we’re just handing investors a bigger slice of pie they were going to eat anyway. Plenty of VC cash flows into companies long after they’ve blown past the QSBS cap, when new stock no longer qualifies. Why? Because if a “unicorn” exit is in sight, the tax break doesn’t matter. QSBS is the gravy, not the turkey. And if that’s the case, it means that Congress just withdrew $15 billion from the US Treasury to benefit a narrow slice of already well-off Americans, without any overall benefit to the economy.
In other words: a handout to VCs. Just sayin’.
Categorised as: Fundraising, Seed Financing