There’s Been a Major Update to QSBS and Here’s How Founders Can Benefit
The Qualified Small Business Stock (QSBS) tax exclusion has always been a powerful, but narrowly accessible, tool for founders and early investors. However, the rules have just changed.
Under the One Big Beautiful Bill Act, effective as of July 4, 2025, more companies now qualify for this federal capital gains break, and more shareholders will be able to use it. The highlights:
Higher asset threshold: Companies with up to $75M in gross assets before or immediately after share issuance (up from the previous $50M) can now qualify.
Exclusion limit increase: The exclusion cap jumps from $10M to $15M, or 10x your basis, whichever is greater.
Shorter holding periods: No longer “five years or nothing,” you can now get a 50% exclusion after three years and a 75% exclusion after four.
New rules for new shares: Applies to stock issued after July 4, 2025. Shares acquired before that date remain under the old rules.
If you’re issuing equity now, these updates could translate into millions in tax savings at exit. But the IRS will expect airtight documentation to prove eligibility.
Where Redwood Comes In
We provide the defensible valuation information your legal and tax advisors need to substantiate QSBS status. QSBS eligibility depends on when shares are issued and the company’s gross assets at that time. Whether as a standalone exercise or as an addition to a 409A valuation, Redwood can:
Prepare a QSBS summary letter ensuring defensible valuation data to support eligibility.
Document fair market value and important milestones at key dates such as SAFE conversions, option exercises, or LLC-to-C-corp conversions.
Maintain a clear valuation record that holds up under IRS scrutiny.
Bottom line
QSBS eligibility is more accessible than ever before, but it's not automatically granted. The sooner you start tracking issuance dates and asset values, the better positioned you will be when an exit opportunity comes.
If you’re issuing stock this year or want to confirm whether your company’s past issuances qualify, Redwood can help you build QSBS documentation directly into your 409A process or as a standalone engagement.