PlainBillCongress, translated.Legislation. Context. Public interest.Referred to the House Committee on Ways and Means.
Congressional Research Service
Version 00 · Introduced in House · Feb 11, 2025
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.)
Showing the opening paragraphs of the official summary.
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.).
People & committees
Rep. Kustoff, David [R-TN-8] · R–TN
Legislative record
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Referred to the House Committee on Ways and Means.
Introduced in House
Introduced in House
Primary sources
Text links open the official source. We also preserved the text version used in the PlainBill explanation below.
Source last updated: Jun 1, 2026. Consult Congress.gov for the current record.
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PlainBill explanation
Based on the full Introduced in House · 2025-02-11 text. This explanation has not received human editorial review. This overview describes the proposal’s major provisions; it does not establish what its real-world effects would be.
The proposed Small Business Investment Act of 2025 would let eligible investors exclude part of their profit on qualifying small-business stock from taxable income after three years, with larger exclusions for longer ownership. It would also let certain investors count time holding convertible debt—a loan that can become company stock—toward the stock’s holding period. It would remove specified corporate-type restrictions and add rules for S corporations, a corporate tax category. These changes would remain subject to eligibility requirements and exceptions.
This Act may be cited as the Small Business Investment Act of 2025.
Except as provided in paragraphs (3) and (4), the applicable percentage under paragraph (1) shall be determined under the following table: Years stock held: Applicable percentage: 3 years 50% 4 years 75% 5 years or more 100%
the stock so acquired shall be treated as having been held during the period during which the qualified convertible debt instrument was held.
by striking C corporation in paragraphs (1) and inserting corporation
In the case of an S corporation, the requirements of this subsection shall be applied at the corporate level.
Section 2 would replace the general requirement to hold qualifying stock for more than five years with a requirement to hold it for at least three years. Subject to the existing exceptions in paragraphs (3) and (4), the excluded share of the gain would be 50% after three years, 75% after four years, and 100% after five years or more.
by striking held for more than 5 years and inserting held for at least 3 years.
Except as provided in paragraphs (3) and (4), the applicable percentage under paragraph (1) shall be determined under the following table: Years stock held: Applicable percentage: 3 years 50% 4 years 75% 5 years or more 100%
The proposal would specify that the separate rules in existing paragraphs (3) and (4) concern stock held for more than five years, and would set their exclusion percentages at 75% and 100%, respectively. The full eligibility conditions for those existing rules are not reproduced.
Paragraphs (3) and (4) of section 1202(a) of such Code are each amended by inserting held for more than 5 years and after In the case of qualified small business stock.
Section 1202(a)(3)(A) of such Code is amended to read as follows: (A) the applicable percentage under paragraph (1) shall be 75 percent
Section 1202(a)(4)(A) of such Code is amended to read as follows: (A) the applicable percentage under paragraph (1) shall be 100 percent
The bill would add a reference to the period before its enactment to the existing rule in section 1202(a)(4). Because that existing paragraph is not reproduced in full, the supplied text does not show its complete date conditions.
Section 1202(a)(4) of such Code is amended by inserting and before the date of the enactment of the Small Business Investment Act of 2025 after Act of 2010.
Three related provisions of section 1202 would also have their holding-period language changed from more than five years to at least three years. Their full operation cannot be determined from the amendment instructions alone.
Section 1202(b)(2) of such Code is amended by striking more than 5 years and inserting at least 3 years.
Section 1202(g)(2)(A) of such Code is amended by striking more than 5 years and inserting at least 3 years.
Section 1202(j)(1)(A) of such Code is amended by striking more than 5 years and inserting at least 3 years.
Section 2(c), described as continuing treatment as not a tax-preference item, would limit the opening language of section 57(a)(7) to stock acquired on or before enactment of the Creating Small Business Jobs Act of 2010. It would also delete section 1202(a)(4)(C). The underlying tax calculation rules are not reproduced, so the complete tax consequences are not established by this text.
Continued treatment as not item of tax preference
Section 57(a)(7) of such Code is amended by striking An amount and inserting In the case of stock acquired on or before the date of the enactment of the Creating Small Business Jobs Act of 2010, an amount.
Section 1202(a)(4) of such Code is amended— (A) by striking , and at the end of subparagraph (B) and inserting a period, and (B) by striking subparagraph (C).
Most section 2 changes would apply only to stock acquired after the bill becomes law. The tax-preference changes in subsection (c) would instead take effect as though included in section 2011 of the Creating Small Business Jobs Act of 2010.
Except as provided in paragraph (2), the amendments made by this section shall apply to stock acquired after the date of the enactment of this Act.
The amendment made by subsection (c) shall take effect as if included in the enactment of section 2011 the Creating Small Business Jobs Act of 2010.
Section 3 would treat stock received solely by converting qualifying debt as qualified small-business stock if the conversion does not recognize a gain for tax purposes. The investor could count the time holding that debt toward the stock’s holding period.
If any stock in a corporation is acquired by the taxpayer, without recognition of gain, solely through the conversion of a qualified convertible debt instrument— (i) the stock so acquired shall be treated as qualified small business stock in the hands of the taxpayer, and (ii) the stock so acquired shall be treated as having been held during the period during which the qualified convertible debt instrument was held.
To qualify, the bond or other debt must have been issued originally by the corporation to that taxpayer and must be convertible into its stock. The issuer must remain a qualified small business from issuance through conversion and meet the referenced active-business requirements during substantially all of the taxpayer’s ownership of the debt.
the term qualified convertible debt instrument means any bond or other evidence of indebtedness— (i) which is originally issued by the corporation to the taxpayer, (ii) the issuer of which— (I) from issuance until conversion, is a qualified small business, and (II) during substantially all of the taxpayer’s holding period of such bond or evidence of indebtedness, the corporation meets the active business requirements of subsection (e), and (iii) which is convertible into stock in the corporation.
The convertible-debt changes would apply only to debt instruments originally issued after enactment.
The amendments made by this section shall apply to debt instruments originally issued after the date of the enactment of this Act.
Section 4 would remove specified C-corporation restrictions from the definitions and requirements for qualified small-business stock and qualified small businesses. This would broaden the corporate forms those particular provisions allow; the bill does not reproduce all other eligibility requirements.
Section 1202(c) of the Internal Revenue Code of 1986 is amended— (1) by striking C corporation in paragraphs (1) and inserting corporation, and (2) by striking and such corporation is a C corporation in paragraph (2)(A).
Section 1202(d)(1) of such Code is amended by striking which is a C corporation.
When determining which corporations belong to a controlled group—a grouping based on corporate ownership—the amended rule would require taking stock ownership in an S corporation into account. The existing group-membership rules are not reproduced.
Any determination of the members of a controlled group of corporations under this paragraph shall include taking into account any stock ownership in an S corporation.
For a disposition of stock with any gain excluded from taxable income under section 1202, the bill would make section 469(g)(1)(A) inapplicable. This change appears under the heading on passive losses, but the omitted existing provision prevents a complete explanation of which loss treatment would change.
Treatment of passive losses Section 469(g)(1) of such Code is amended by adding at the end the following new subparagraph: (D) Certain dispositions of small business stock In the case a disposition any gain from which is excluded from gross income under section 1202, subparagraph (A) shall not apply.
For S corporations, the requirements of section 1202(e) would be applied to the corporation itself. Those requirements are not reproduced in full.
Section 1202(e) of such Code is amended by adding at the end the following new paragraph: (9) Applied at S corporation level In the case of an S corporation, the requirements of this subsection shall be applied at the corporate level.
All section 4 changes would apply to stock acquired after enactment.
The amendments made by this section shall apply to stock acquired after the date of the enactment of this Act.
The supplied action snapshot, updated June 1, 2026, records introduction in the House and referral to the House Committee on Ways and Means on February 11, 2025. It supplies no later action and does not establish whether the bill subsequently advanced or became law.
Source snapshot updated 2026-06-01T17:00:21Z. 2025-02-11: Referred to the House Committee on Ways and Means. 2025-02-11: Introduced in House
A closer look
Reviewed version: Introduced in House · 2025-02-11. These findings describe provisions and who may benefit; they are not judgments of waste, corruption, or motive.
This review covers the supplied bill text. “None identified” does not rule out provisions in later versions or accompanying reports and disclosures.
Provisions outside the bill’s main subject, or policy changes attached to appropriations.
None identified in the reviewed text
No unrelated provision or policy change attached to appropriations was identified in the supplied complete introduced text. This conclusion does not cover other versions or accompanying materials.
Spending directed to particular recipients or places outside ordinary competitive or formula-based allocation.
None identified in the reviewed text
No congressionally directed spending for a particular recipient or place was identified in the supplied complete introduced text. This does not establish absence in other versions or accompanying disclosure materials.
Narrow exceptions, exemptions, or preferential treatment that warrant a closer look.
None identified in the reviewed text
No materially narrow carve-out or preferential exception beyond the main policy’s eligibility rules and intended beneficiaries was identified in the supplied complete introduced text. This conclusion is limited to that version.
Full text preserved for this analysis. Legislative record snapshot: Jun 1, 2026. How PlainBill uses AI