By Argyrios C. Saccopoulos

For new stock issuances only, the OBBBA supercharges and updates the “qualified small business stock” (“QSBS”) exclusion under section 1202 (which has been a powerful tax incentive for certain investors in certain start-ups and other small businesses, providing an exclusion on exit for certain qualifying gains in QSBS exits).

• Easier to Qualify: The aggregate gross asset limitation for a qualified small business is increased to $75m (up from $50m) and will be indexed for inflation.
• Easier to Exit: The exclusion now phases in over three years, with a 50% exclusion at year 3, a 75% exclusion at year 4, and a 100% exclusion at year 5 (rather than a required 5-year hold).
• Higher Limitation: The exclusion is now limited to the greater of $15m or 10x basis (as determined for QSBS purposes) (was $10m or 10x), indexed for inflation.

In addition to its traditional role of providing tax incentives for growth equity investors in small businesses, Section 1202 should be considered by legacy owners in potential restructurings of expanding businesses that could be put on the market in future years. The latest changes are likely to increase the attractiveness and viability of QSBS structures. To learn more, contact a JW tax attorney.

The opinions expressed are those of the authors and do not necessarily reflect the views of the firm, its clients, or any of its or their respective affiliates. This article is for informational purposes only and does not constitute legal advice. For more information, please contact a member of the Tax practice.

Meet Argy

Argyrios C. Saccopoulos advises buyers, sellers, and joint venture partners on M&A and real estate transactions, with a focus on federal income tax issues related to financings, mergers, and entity structures. He counsels fund sponsors and investors on tax aspects of fund formations and investments, and has significant experience with real estate investment trusts (REITs), including compliance and structuring for both private and public REITs. Argyrios also advises clients on qualifying for “qualified opportunity zone” tax incentives under the Tax Cuts and Jobs Act and the OBBBA.