The QSBS rules are updated in the new tax bill. You can exclude up to $15 million of gains of federal tax on the sale of your business or company stock. There are some additional rules for shares acquired before and after July 4, 2025.
Updated QSBS Information
Here’s a chart that details the latest QSBS rules for shares acquired before and after July 4, 2025:
QSBS Rules
| Shares Issued before July 4, 2025 | Shares Issued after July 4, 2025 | |
|---|---|---|
| Company Asset Limit | $50 million | $75 million |
| Holding Period Required | 5 year minimum for 100% capital gains tax exclusion (for shares acquired after 9/27/2010) Shares acquired between 2/18/2009 and 9/26/2010 - 75% exclusion Shares acquired before 2/18/2009 - 50% exclusion A portion of the gains may be subject to the alternative minimum tax (AMT) | Minimum of three years, as follows: 3 years: 50% exclusion 4 years: 75% exclusion 5 years: 100% exclusion |
| Tax Benefit Limit | Maximum of $10 million or 10 times the cost basis, whichever is greater | Maximum of $15 million or 10 times the cost basis, whichever is greater |
As you can see, the new adjustments to QSBS are more favorable (to an already advantageous law) for a variety of reasons:
- The company asset limit is higher at $75 million
- Exclusions start in year 3 as opposed to year 5
- The maximum federal tax benefit increases from $10 million to $15 million
How to Use QSBS Rules in Your Favor
For example, you sold a business in 2025 (shares acquired before July 4, 2025) that qualifies for QSBS rules. The sales proceeds are $20 million, with a cost basis of $500,000. You can claim the entire $10 million limit in 2025, or spread it out over several years.
For example, if you realize $20 million, $10 million will be considered an eligible QSBS gain (free from federal tax) and the remaining $9.5 million will be taxed like any other capital gain.
There’s a bonus item! If you are fortunate enough to have more than one qualified small business, you can claim a $10 million exclusion for each.
Timeline for Share Ownership
The tax savings for QSBS differ based on when the shares were acquired. We will continue with our example above where the sales proceeds are $20 million and the cost basis is $500,000.
The amount of your tax break differs a lot depending on when you acquired your shares.
Share Ownership Timeline
| Before 2/17/09 | Between 2/17/09 & 9/28/10 | After 9/28/10 | After 7/4/25 | |
|---|---|---|---|---|
| Total Gain | $19,500,000 | $19,500,000 | $19,500,000 | $19,500,000 |
| Exclusion | $5,000,000 | $7,500,000 | $10,000,000 | $15,000,000 |
| Tax Paid | $4,201,000 | $3,581,000 | $2,261,000 | $1,071,000 |
| After Tax Proceeds | $15,299,000 | $15,919,000 | $17,239,000 | $18,429,000 |
You can see that it’s better to acquire your shares later in order to have more tax savings. The exclusions increase as time goes on.
Please note that the shares acquired after July 4, 2025 assume 5 years of ownership to get the entire $15 million exclusion. So you wouldn’t be able to get these funds until late summer 2030, at the earliest.
State Laws
Keep in mind that QSBS is a federal law so you are exempt from federal income taxes. Most states recognize QSBS but some do not. For example, the following states and territories do not recognize QSBS.
- Alabama
- California
- Mississippi
- New Jersey (will provide QSBS exclusion after December 31, 2025)
- Pennsylvania
- Puerto Rico
- So you will have to pay capital gains taxes to these states and territories at their tax rates.
QSBS has many stipulations and intricate rules. It’s best to work with a professional when setting it up so you can get your tax exemption.