US Senate Finance Committee proposes Major Expansion of QSBS Exclusion (IRC section 1202)
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- On June 20, 2025
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US Senate Finance Committee Proposes Major Expansion of QSBS Exclusion (IRC Section 1202)
The Senate’s reconciliation version of H.R. 1 proposes significant enhancements to the Qualified Small Business Stock (QSBS) gain exclusion, in contrast to the House-passed version.
The proposed changes are as follows:
| Topic | Current Law | Senate Proposal |
|---|---|---|
| Tiered Gain Exclusion |
|
|
| Per-Issuer Limit | The aggregate “eligible gain” that can be excluded is subject to a per-issuer, per-year cap:
|
|
| Aggregate Gross Asset Threshold | QSBS eligibility is limited to corporations whose total assets have never exceeded $50 million from incorporation through immediately after the stock issuance. | The threshold would increase to $75 million, subject to annual inflation adjustments. |
Effective Date:
The amendments made by the proposed legislation would generally apply to stock issued or acquired, and to tax years beginning on or after the date of enactment (except as otherwise stated above).
Closing Thoughts:
The Senate’s proposed expansion of IRC Section 1202 under H.R. 1 represents a meaningful boost to U.S. startup investment incentives by introducing earlier gain exclusion thresholds, raising the per-issuer cap, and modernizing asset eligibility limits.
Importantly, these enhancements align strategically with other House and Senate proposals, such as full expensing for business assets and domestic research and experimentation (R&E) deductions, creating a more supportive tax environment. Collectively, they reflect a strong commitment to pro-innovation tax policy and encourage long-term investment in high-growth American startups.
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