Opportunities for Small Business Owners Provided by the Big Beautiful Bill Act

On July 4, President Trump signed the One Big Beautiful Bill Act (OBBBA) into law. This extensive piece of legislation has many changes to current federal income tax law, one of which relates directly to the sale of corporate stock—and a potential opportunity for owners of qualified small business stock to take advantage of significant tax savings upon the sale of their stock.

Under the changes made by the OBBBA, noncorporate owners of “qualified small business stock” can now exclude from income taxes up to $15 million of gain on the sale of that stock. Another key change is the holding period required to take advantage of this: now, owners who have held the qualified small business stock for three years are eligible to have 50% of their gain (up to the $15 million cap) excluded; this increases to 75% for four years and 100% for five years. The other key change, creating opportunities for more small business owners, is that the amount of gross assets a corporation can have and still be considered a “small business” has increased from $50 million to $75 million. This increase, along with the $15 million cap, is subject to annual inflation indexing starting in 2026.

Prior to the passage of the OBBBA, IRC § 1202 allowed noncorporate taxpayers who realized gains on the sale or exchange of qualified small business stock, which had been held for five or more years, to exclude up to $10 million of the realized gain from capital gains taxes. Along with the other specifics required by § 1202, this was an all or nothing exclusion: you either qualified for it, and could exclude up to $10 million, or you did not, and you could exclude nothing.

Given this background, the changes to IRC § 1202 are significant and create substantially more opportunity for owners of qualified small business stock to avoid a large tax bill upon selling their shares. In particular, the extension of this program to include owners who have only held the stock for three years should allow a large number of small business owners to use this exclusion.

There is, however, one drawback: these changes only apply to stock that is issued on or after July 4, 2025. That means that any qualified small business stock that was issued prior to July 4,2025 will still be governed by the old rules. There may be, however, some creative ways to structure transactions that result in new stock being issued after this July 4, 2025 date, allowing owners with stock issued before July 4, 2025 to take advantage of these new provisions.

If you would like to discuss this change to § 1202 or discuss the applicability of § 1202 to your own stock, please feel free to reach out to any of us.      

Martin Eisenstein | meisenstein@brannlaw.com
Ben Lund | blund@brannlaw.com
Kevin Haley | khaley@brannlaw.com
Adam Mooney | amooney@brannlaw.com