Details of Public Law 119-21, section 70431 , One Big Beautiful Bill Act

A taxpayer other than a corporation can exclude a percentage of the gain from the sale of certain qualified small business stock (QSBS) acquired at original issue and held for at least five years.

Under prior federal law, the amount of gain eligible for the exclusion by an individual with respect to the stock of any corporation was the greater of (1) ten times the taxpayer’s basis in the stock or (2) $10 million (reduced by the amount of gain eligible for exclusion in prior years). Also under prior federal law, to qualify as a small business, when the stock was issued, the aggregate gross assets (i.e., cash plus aggregate adjusted basis of other property) held by the corporation could not exceed $50 million. Different percentages applied depending on whether the QSBS was in an empowerment zone business or on the date of acquisition.

This provision creates new thresholds related to the percentage of the gain eligible for the gross income exclusion when the stock is held for at least 3 years. The eligible percentages are as follows:

50% when stock is held for 3 years

75% when held for 4 years, and

100% when held for 5 years or more

In addition, this provision modifies the applicable dollar limitation on eligible gain from one or more dispositions of stock for the taxable year, from $10 million to $15 million, for stock acquired after July 4, 2025. Additionally, this provision increases the aggregate gross asset limitation from $50 million to $75 million. These modified limitations are to be adjusted annually by inflation beginning in 2027.

California does not conform to the federal small business stock exclusion. As a result, California does not conform to the changes made by this provision.