The One Big Beautiful Bill Act (OBBBA) allows the seller of a qualifying small business to not pay Capital Gains Tax on the first $15M in qualifying gains. If you’re a C Corporation Owner and meet the Qualified Small Business Stock (QSBS) requirements, OBBBA offers an amazing opportunity.
But you must qualify under the rules to receive those tax savings. For its stock to be considered QSBS, the issuing company must meet the following requirements…
1 – It must be a U.S. corporation taxed as a C Corp. S Corps, Real Estate Investment Trusts (REITs), and Partnerships aren’t eligible. This might necessitate a conversion to a C Corp.
2 – For stock issued before July 5, 2025, the company’s gross assets must not have exceeded $50 million at any point from August 10, 1993, until immediately after the stock was issued.
3 – For stock issued on or after July 5, the gross asset limit is $75 million.
4 – For “substantially all” of the shareholder’s stock holding period, at least 80% of the company’s assets (by value) must be used in the active conduct of a qualified trade or business.
Qualified Business Exclusions
The business cannot be in the following field…:
1 – Services in health, law, accounting, consulting, or athletics
2 – Banking, financing, insurance, or investing businesses
3 – Farming
4 – Hospitality, such as operating hotels, motels, and restaurants
The company must not have engaged in significant stock redemptions, including buying back its own stock, around the time of the QSBS issuance.
Qualifications For Shareholders
For a shareholder to claim the QSBS exclusion, they must meet the following personal requirements:
1 – The shareholder must be a non-corporate taxpayer, such as an individual, trust, or estate. C corporations aren’t eligible.
2 – The stock must be acquired directly from the issuing company upon its original issuance in exchange for cash, property (not including other stock), or services provided to the company.
3 – If the stock was acquired after July 4, 2025, a tiered exclusion is available starting at 50% for stock held for at least three years, 75% for four years, and 100% for five years or more.
4 – If the stock was acquired before July 5, 2025, the stock must have been held for more than five years to qualify for any gain exclusion. The percentage of the exclusion ranges from 50% to 100% based on the specific date of acquisition.
The shareholder cannot have entered into certain transactions, like a short sale of substantially identical property, that reduces the risk of holding the stock.
Let me leave you with this…
Again, the potential savings on this could be huge for many entrepreneurs. Why sell an S Corp for $10M where the long term capital gains tax would be $2.5M when you could sell a QSBS for the same amount and pay absolutely nothing in tax?
But this is something where you need to qualify. Planning and properly documenting those qualifications are necessary.
These types of transactions are going to be under intense scrutiny. If you were the IRS and were expecting a $2.5M payday and received nothing when the returns were filed, you’d probably take a gander as well.
In saying that, I don’t want to scare any of you. This was written into tax law and is the existing law of the land. There’s nothing wrong with taking the exemption.
We just need to be careful to dot all of our i’s and cross all of our t’s.
This is the second in a series I’m writing on the QSBS tax exclusion. I’ll be writing about how to convert to a C Corp Structure and the other tax implications of selling QSBS Stock on Monday.
When you have questions, don’t hesitate to call. We’re here to help.
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