What does Preamble of Small Business Investment Act of 2025 do?

This bill proposes to amend the Internal Revenue Code of 1986. The amendment concerns the exclusion of gain from qualified small business stock.

What does SHORT TITLE. of Small Business Investment Act of 2025 do?

This bill is formally titled the Small Business Investment Act of 2025.

What does PHASED INCREASE IN EXCLUSION FOR GAIN FROM QUALIFIED SMALL of Small Business Investment Act of 2025 do?

This section amends Section 1202 of the Internal Revenue Code of 1986 regarding the exclusion for gain from qualified small business stock (QSBS). The holding period requirement for QSBS to qualify for the exclusion is reduced from more than 5 years to at least 3 years. A new table is added to determine the applicable percentage of exclusion based on the number of years the stock is held, ranging from 50% for 3 years to 100% for 5 or more years. Certain provisions related to QSBS are modified to apply to stock acquired on or before the enactment of the Creating Small Business Jobs Act of 2010. Additional conforming amendments are made to various sections of the Internal Revenue Code to align with the changes to the QSBS rules. The amendments generally apply to stock acquired after the date of enactment of this Act, with an exception for the amendment related to treatment as not an item of tax preference, which takes effect as if included in the Creating Small Business Jobs Act of 2010.

What does TACKING HOLDING PERIOD OF CONVERTIBLE DEBT INSTRUMENTS. of Small Business Investment Act of 2025 do?

This section amends Section 1202(f) of the Internal Revenue Code of 1986. It introduces a new paragraph (2) regarding convertible debt instruments. If a taxpayer acquires stock through the conversion of a qualified convertible debt instrument, the stock is treated as qualified small business stock. The holding period of the stock is treated as the period during which the convertible debt instrument was held. A 'qualified convertible debt instrument' is defined as a bond or other evidence of indebtedness originally issued to the taxpayer by a qualified small business. The issuer must be a qualified small business from issuance until conversion, and the corporation must meet active business requirements during the taxpayer's holding period. The amendments apply to debt instruments originally issued after the enactment of this Act.

What does GAIN EXCLUSION ALLOWED WITH RESPECT TO QUALIFIED SMALL BUSINESS of Small Business Investment Act of 2025 do?

This section amends Section 1202 of the Internal Revenue Code of 1986 regarding the gain exclusion allowed with respect to qualified small business stock. The amendments remove the requirement that the corporation be a 'C corporation' in certain paragraphs of Section 1202. Aggregation rules applicable to S corporations are clarified, requiring consideration of stock ownership in an S corporation when determining members of a controlled group. Section 469(g)(1) is amended to prevent passive loss rules from applying to gains excluded under Section 1202. Special rules are added to apply the requirements of Section 1202 at the corporate level for S corporations. The amendments apply to stock acquired after the date of enactment of this Act.

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Small Business Investment Act of 2025

Last updated: 2/11/2025 · Introduced: 2/11/2025

Author: David Kustoff (R-TN)

TL;DR (AI)

This bill reduces the minimum holding period for qualified small business stock (QSBS) to qualify for a gain exclusion from five years to three years, with a tiered exclusion percentage based on the holding period.
The bill allows taxpayers who acquire stock through the conversion of qualified convertible debt instruments issued by a qualified small business to treat the stock as QSBS and tack on the holding period of the debt instrument.
This legislation expands eligibility for the qualified small business stock gain exclusion to include certain S corporations and prevents passive loss rules from applying to gains excluded under this provision.

119th Congressin committeeOfficial page

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Other Sections

Includes provisions on preamble, short title., and 3 more.

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