The Small Business Investment Act of 2025 makes significant changes to federal tax incentives for investors in small businesses. The bill increases the capital gains tax exclusion for qualified small business stock investments and shortens the minimum holding period from more than five years to at least three years. Under the new tiered system, investors who hold the stock for three years receive a 50 percent exclusion, four years receive 75 percent, and five or more years receive a 100 percent exclusion from capital gains taxes. The bill also extends these benefits to S corporations and allows investors who convert certain debt instruments into small business stock to count their debt-holding period toward the required holding period. These changes take effect for stock acquired after the bill is enacted, with the exception of certain provisions related to tax preference treatment that have retroactive application to 2010 legislation.
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