QSBS conversation resurfaces
Social threads revived Qualified Small Business Stock (QSBS) talk — highlighting that a tax‑free equity windfall (e.g., ~$2M) can be transformational for founders and early employees. The posts framed QSBS as a powerful, albeit U.S.-centric, accelerant for home purchases or new ventures while noting Canadian CCPC parallels exist (x.com).
The One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, rewired Section 1202 by creating a tiered QSBS exclusion—50% after a 3‑year hold, 75% after 4 years, and 100% after 5 years for stock issued after July 4, 2025. (perkinscoie.com) OBBBA also raised the per‑issuer exclusion cap (from the historic $10 million floor to $15 million for stock issued after July 4, 2025, indexed for inflation) and increased the issuing‑corporation gross‑asset test (from $50 million to $75 million), while leaving pre‑enactment QSBS under the old rules. (wilsonlewis.com) Under the prior regime a $10 million exclusion translated into up to roughly $2.38 million of federal tax saved at the combined 20% long‑term capital gains rate plus a 3.8% Net Investment Income Tax (NIIT), and the 10x‑basis cap remained an alternative limiter to the dollar cap. (fbtgibbons.com) Section 1202 still requires QSBS to be stock of a domestic C‑corporation acquired at original issuance, and stock received on exercise of employee options can qualify as original issuance while the QSBS holding period generally begins at exercise or conversion. (law.cornell.edu) Canadian parallels remain materially different: Ottawa raised the Lifetime Capital Gains Exemption (LCGE) to $1.25 million effective June 25, 2024, and introduced the Canadian Entrepreneurs’ Incentive (CEI), which reduces the inclusion rate to one‑third on a lifetime limit that the government will phase in by $200,000 per year starting in 2025 until a $2 million cap is reached in 2034. (canada.ca) Tax and deal advisers flagged immediate planning priorities after the OBBBA—cap‑table cleanup, documenting original‑issuance facts, and tracking issuer gross assets—because qualification hinges on corporate facts over the entire holding period and mistakes can disqualify exclusions worth millions. (bakertilly.com)
