QSBS after July 4, 2025: shorter holding periods and bigger caps

Section 1202 as amended by Pub. L. 119-21 calls July 4, 2025 the applicable date. Stock acquired on or before it still needs a holding period of more than five years, and the exclusion percentage depends on when it was bought: the Schedule D instructions give 50% for stock acquired on or before February 17, 2009, 75% through September 27, 2010, and 100% after that.

Stock acquired after July 4, 2025 follows a new table in section 1202(a)(5):

• Held at least 3 years: 50% of the gain excluded.
• Held at least 4 years: 75% excluded.
• Held 5 years or more: 100% excluded.

Excludable gain from one issuer is limited to the greater of a dollar cap or 10 times the adjusted basis of that issuer’s stock sold in the year. The dollar cap is $15 million for stock acquired after the applicable date and $10 million for stock acquired on or before it. The statute indexes the $15 million figure for inflation in tax years beginning after 2026.

On the issuer side, the 2025 Schedule D instructions put the corporation’s total gross assets limit at $75 million for stock issued after July 4, 2025, and $50 million for stock issued on or before that date. The test looks at gross assets at all times up to issuance and immediately after it, counting the cash raised.

The sale goes on Form 8949 with code Q in column (f) and the excluded gain entered as a negative number in column (g). Under the 2025 instructions, an exclusion of less than 100% feeds the 28% Rate Gain Worksheet, so expect a three- or four-year sale of new stock to leave taxable gain to work through.

The 2025 Schedule D instructions describe only the older percentages. For the new tiers, work from the Code text and check the 2026 instructions when they are released.

For founder and investor clients, build a lot-by-lot schedule now: issuance date, acquisition date, price paid, and whether the shares came at original issue. Mixed lots straddling July 4, 2025 need separate tracking because each lot sits under a different cap and holding-period rule.

For the company, the gross assets test is easier to defend with a balance sheet from the books at each issuance date. A startup client whose bookkeeping is current can produce that quickly; one reconstructing years later usually cannot.