A tax provision that lets startup founders and early investors shield millions in capital gains from the IRS is growing fast, and it’s catching heat from an unlikely direction: the administration that just made it more generous.
The Qualified Small Business Stock (QSBS) exclusion, buried in Section 1202 of the Internal Revenue Code, has quietly become one of the most powerful wealth-building tools in the startup ecosystem. It allows qualifying investors to exclude up to 100% of their long-term capital gains when selling stock in small C corporations, provided they’ve held the shares for at least five years.
A tax break that just got bigger
The One Big Beautiful Bill Act, signed by President Trump on July 4, 2025, expanded QSBS benefits. The new law raised the exclusion cap to the greater of $15 million or 10 times the investor’s adjusted basis, up from the previous $10 million ceiling. The $15 million figure will also be inflation-adjusted starting in 2026.
The provision dates back to 1993, when it was first introduced to encourage investment in small businesses. The 100% exclusion rate that exists today was established in 2010. Before that, only 50% to 75% of gains qualified for the exclusion.
