Investors in qualified small business stock (shares in eligible startup companies) would get a larger and faster capital gains tax break under this bill. The current 50% gains exclusion would expand to 100% for stock held five or more years, with partial exclusions at three and four years — and the minimum holding period drops from five years to three. The bill also extends the exclusion to S-corporations (pass-through companies), not just C-corporations, and allows investors who convert qualifying startup debt into stock to count the time they held the debt toward the holding period. These changes apply to stock or debt instruments acquired after the bill's enactment.
Corporate Benefits
- Capital gains exclusion rate on qualifying startup stock — increases from 50% to up to 100% depending on holding period
- Minimum holding period for any exclusion — reduces from 5 years to 3 years
- Exclusion eligibility — expands from C-corporations to include S-corporations
- Holding-period tacking — extends to investors who convert qualifying startup debt instruments into stock
Congressional Summary
Small Business Investment Act of 2025 This bill reduces the time period a noncorporate taxpayer is required to hold qualified small business stock (QSBS) before a percentage of the gain on the sale or exchange of such stock may be excluded from gross income. (Limitations apply.) The bill also expands QSBS to include qualified debt instruments and certain corporate stock.Under current law, a noncorporate taxpayer may exclude from gross income 100% of the gain from the sale or exchange of QSBS acquired after September 27, 2010 (or a smaller percentage if acquired on or before such date) and held for more than five years. Further, under current law, QSBS must be C corporation stock. (Exclusions and other requirements apply.)The bill allows a noncorporate taxpayer to exclude from gross income50% of the gain on the sale or exchange of QSBS (purchased after the enactment date of the bill) held for three years,75% of the gain on the sale or exchange of such stock held for four years, and100% of the gain on the sale or exchange of such stock held for five years.Further, the bill expands QSBS to include stock acquired through the conversion of a qualified convertible debt instrument (e.g., bond converted into stock). Under the bill, the holding period of such stock includes the time period during which the qualified convertible debt instrument is held.Finally, the bill expands QSBS to include corporate stock, not just C corporation stock. (Limitations apply.).
Details
- Congress
- 119th
- Chamber
- House
- Status
- summarized
- Action
- Introduced in House
- Action Date
- 2025-02-11
- Date Added
- 2026-06-02
- Source
- Congress.gov →
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