The OBBBA boosts QSBS tax breaks for investors and revives 100% bonus depreciation for business property placed in service after Jan 20, 2025:
- Do you own stock in a high-growth small business? Or are you a founder, an investor, or an employee of one?
- If you plan to buy equipment, furniture, computers, or other personal property for your business, the One Big Beautiful Bill Act delivers great news
OBBBA Expands The Tax Benefits Of Qualified Small Business Stock
Do you own stock in a high-growth small business? Or are you a founder, an investor, or an employee of one? If so, you need to understand how the One Big Beautiful Bill Act (OBBBA) expands the tax benefits of qualified small business stock (QSBS).
What QSBS Is
“QSBS” refers to stock issued by regular C corporations. When the corporation and the shareholder meet specific requirements, QSBS owners can avoid federal tax on most or all of their gains when they sell the stock. This can mean tax-free profits worth tens of millions of dollars.
Which Companies Qualify
Not all businesses may issue QSBS. The law excludes certain industries, including finance, insurance, farming, professional services (such as law, accounting, and consulting), and hospitality.
Additionally, only smaller companies are eligible. Previously, a company could not exceed $50 million in total assets when issuing QSBS. The OBBBA raises that cap to $75 million, giving larger businesses access to this powerful tax benefit.
New Holding Period Rules
You must hold QSBS for a minimum period before you can exclude gains from tax. The five-year requirement remains in place for the full 100% tax exclusion. However, the OBBBA introduces new flexibility for OBBBA-qualified QSBS: you can now receive partial exclusions if you hold stock for only three or four years.
Higher Exclusion Limits
Before the OBBBA, the law allowed you to exclude from tax the greater of $10 million or 10 times your basis in the stock. The OBBBA increases the dollar limit to $15 million while keeping the 10-times-basis rule. This change delivers another significant win for QSBS owners.
Effective Date
All these enhancements apply to QSBS issued on or after July 5, 2025. Together, they represent the most significant upgrade to QSBS benefits in more than a decade. For many investors, these rules could transform successful small business investments into tax-free windfalls.
Example. Suppose you invest $100,000 in QSBS shares in 2026 and sell them in 2031 for $1.1 million. Because you held the stock for five years, you can exclude your $1 million gain from federal tax. This saves you from paying both the 20% federal long-term capital gains tax and the 3.8% net investment income tax—$238,000 in tax savings.
100% Bonus Depreciation Returns
If you plan to buy equipment, furniture, computers, or other personal property for your business, the One Big Beautiful Bill Act (OBBBA) delivers great news. You can now deduct the full cost of such property in a single year—without limit.
For manufacturers, the OBBBA goes even further by creating a new 100% deduction for factories and other production-related real estate.
100% Bonus Depreciation Returns
Bonus depreciation lets you deduct a property’s cost in the year you place it in service, instead of spreading the deduction over several years. You can apply it to most personal business property, off-the-shelf software, and land improvements such as landscaping.
The OBBBA increases bonus depreciation to 100% for property acquired and placed in service on or after January 20, 2025. Previously, bonus depreciation had dropped to 60% in 2024 and fell to 40% from January 1 through January 19. The new law makes the 100% deduction permanent.
This change makes bonus depreciation the primary method for deducting personal property. You may deduct the entire cost of a qualifying property in one year if you use it exclusively for business. The only exception is listed property, primarily passenger automobiles, which remain subject to an annual cap of $8,000.
There is no overall limit on bonus depreciation deductions, even if they create a loss. You can carry unused deductions forward to future years. If you prefer not to use bonus depreciation, you must opt out for the entire class of assets.
Enhanced Section 179 Deduction
Section 179 expensing overlaps with bonus depreciation but comes with annual limits. The OBBBA raised the Section 179 limit to $2.5 million for 2025, with a phase-out beginning at $4 million of property placed in service.
Because of the new, permanent 100% bonus depreciation, most businesses will rely less on Section 179. Unlike bonus depreciation, Section 179:
- requires business use of at least 51%,
- cannot create a loss, and
- carries annual caps.
However, Section 179 allows you to pick and choose specific assets to expense, which can be beneficial for planning purposes.
New Deduction for Qualified Production Property
The OBBBA also created a temporary 100% deduction for real property used in manufacturing tangible goods, such as factories, refining halls, and assembly lines.
Typically, businesses depreciate such property over a period of 39 years.
Now, you may deduct the entire cost in one year if you build the property between January 20, 2025, and December 31, 2028, and place it in service by January 1, 2031. Specific existing property may also qualify if it was not in service as qualified production property between January 1, 2021, and May 12, 2025.
Contact your tax and financial advisors to determine the best moves for your situation.