A Bigger Tax Break for Sellers, But Only If You Start Early

By Tom Goldblatt

A change in the 2025 tax law can eliminate federal tax on up to $15 million of gain when you sell your company. Not defer it. Not reduce it. Eliminate it. The catch is the calendar. This break rewards owners who plan years ahead, and it is gone for anyone who waits until a sale is already in front of them.

The provision is Qualified Small Business Stock, or QSBS, under Section 1202 of the tax code. Congress created it in 1993 to encourage investment in smaller companies. The One Big Beautiful Bill Act, signed in July 2025, expanded it in ways that matter to middle-market owners.

Three changes stand out:

1.     The per-owner exclusion rose from $10 million to $15 million of gain, indexed to inflation from here.

2.     The size limit on qualifying companies rose from $50 million to $75 million in gross assets, so more real businesses now fit.

3.     And the holding period got shorter and tiered: for stock acquired after July 4, 2025, you exclude 50 percent of the gain after three years, 75 percent after four, and 100 percent after five. The old rule made you wait the full five years for any break at all.

The math is worth seeing. On $15 million of gain, an owner with no planning pays roughly $3.57 million in federal tax, the 20 percent capital gains rate plus the 3.8 percent net investment income tax. An owner who qualifies for the full exclusion pays nothing at the federal level. State treatment varies, and several states do not follow the federal rule, so your own number depends on where you sit.

Qualifying takes planning, and that is the whole point.

The stock must be C-corporation stock. Many middle-market companies run as S-corporations or LLCs, which means converting, and the clock starts at conversion, not at the moment you decide to sell. Only the appreciation from the conversion date forward qualifies. Wait until a buyer is at the table and there is no time left for the holding period to run.

The decision should never be made for QSBS alone.

A few limits keep this honest. QSBS helps in a stock sale. Many buyers prefer to buy assets for the tax step-up they get, and in an asset deal the exclusion may not reach the seller. Some industries are carved out entirely, including health, law, accounting, banking and other financial services, hospitality, and farming. And converting to a C-corporation carries its own costs, since the company's earnings face entity-level tax along the way.

But here is why it belongs on an owner's radar now, even if a sale is years off.

The planning window and the sale window rarely overlap. By the time a process starts, the levers that would have saved millions are already out of reach. Three years is the new minimum for any exclusion, five for the full one, and the only way to have that time is to start before you need it.

We are not tax advisors, and this is not tax advice. What we see is owners who learn about this a year too late. If a sale is somewhere on your horizon, the move is simple: raise QSBS with your CPA or tax attorney now, while the calendar is still on your side.

Informational only. Not tax, legal, or investment advice. QSBS eligibility turns on facts specific to each company and owner; consult qualified tax counsel. Sources: Holland & Knight; Baker Tilly.