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Small Business Investment Act of 2025
3/12/2025, 2:23 AM
Summary of Bill HR 1199
Currently, the Internal Revenue Code allows for an exclusion of gain from the sale or exchange of qualified small business stock. This exclusion is intended to incentivize investment in small businesses and promote economic growth. However, there are limitations and restrictions on who can benefit from this exclusion.
The proposed changes in Bill 119 hr 1199 seek to expand and improve upon the existing exclusion for qualified small business stock. The bill aims to make it easier for individuals to take advantage of this exclusion and encourage more investment in small businesses. Overall, the goal of this bill is to support small businesses and stimulate economic development by providing tax incentives for investors. It will be interesting to see how this proposed modification to the Internal Revenue Code will impact the investment landscape and small business growth in the United States.
Congressional Summary of HR 1199
Small Business Investment Act of 2025
This bill reduces the time period a noncorporate taxpayer is required to hold qualified small business stock (QSBS) before a percentage of the gain on the sale or exchange of such stock may be excluded from gross income. (Limitations apply.) The bill also expands QSBS to include qualified debt instruments and certain corporate stock.
Under current law, a noncorporate taxpayer may exclude from gross income 100% of the gain from the sale or exchange of QSBS acquired after September 27, 2010 (or a smaller percentage if acquired on or before such date) and held for more than five years. Further, under current law, QSBS must be C corporation stock. (Exclusions and other requirements apply.)
The bill allows a noncorporate taxpayer to exclude from gross income
- 50% of the gain on the sale or exchange of QSBS (purchased after the enactment date of the bill) held for three years,
- 75% of the gain on the sale or exchange of such stock held for four years, and
- 100% of the gain on the sale or exchange of such stock held for five years.
Further, the bill expands QSBS to include stock acquired through the conversion of a qualified convertible debt instrument (e.g., bond converted into stock). Under the bill, the holding period of such stock includes the time period during which the qualified convertible debt instrument is held.
Finally, the bill expands QSBS to include corporate stock, not just C corporation stock. (Limitations apply.).
