As the One Big Beautiful Bill Act continues to evolve in Congress, the Senate Finance Committee’s reconciliation bill (“the Bill”), released on June 16, 2025, significantly expands the scope and benefits of Internal Revenue Code section 1202 with respect to stock acquired on or after its date of enactment. In its current form, the Bill makes three significant changes to IRC section 1202.

First, there are proposed changes to the required holding period to unlock QSBS benefits. Currently, IRC section 1202(a) requires that taxpayers hold their QSBS for over five years for exclusion benefits. The reconciliation bill accelerates exclusion benefits by shortening the minimum holding period with phased-in benefits. Taxpayers would receive a 50% exclusion if they sell QSBS held for at least three years, 75% exclusion if they sell QSBS held for at least four years, and, as under current law, 100% if they sell after more than five years, all subject to the applicable limitations.

Second, the Bill increases the amount of the exclusion. Currently, IRC section 1202(b) provides that each taxpayer can exclude up to $10 million of gain or 10 times a taxpayer’s basis in the shares. Effective for QSBS issued after its enactment, the bill would increase the $10 million gain exclusion amount to $15 million, indexed for inflation beginning in 2027.

Finally, the Bill helpfully increases the cap on “aggregate gross assets” under IRC section 1202(c). Under current law, taxpayers seeking QSBS must acquire stock in domestic C corporations with no more than $50 million of aggregate gross assets, measured by cash and tax basis in the assets held. The Bill raises the aggregate gross assets cap to $75 million, again indexed to inflation beginning in 2027.

As drafted, the Bill would allow for greater exclusions on a faster timeline for a much wider range of investments. Once enacted, for example, a shareholder could acquire stock in a corporation that had already raised $70 million in capital. If all IRC section 1202 requirements were met, the shareholder could then claim a gain exclusion on an exit starting a mere three years later, subject to the phase-in.

However, the QSBS changes in the reconciliation bill may not be included in the final One Big Beautiful Bill Act signed into law. Recall that in 2021, the House Ways and Means Committee proposed to significantly curtail QSBS benefits as part of the Build Back Better bill. None of those changes were ultimately adopted into legislation. The proposed expansion of IRC section 1202 in the One Big Beautiful Bill Act may meet a similar fate.