QSBS changes
Section 1202 Qualified Small Business Stock exclusion remains at 100% federal capital gains exclusion for qualifying stock held at least 5 years — but the bill introduced a new $50M lifetime cap per taxpayer, replacing the previous 10x-of-basis formula for high-value exits. For founders with a cost basis under $1M (most early-stage founders exercising at near-zero 409A valuations), the practical impact is minimal — their exclusion was already capped below $50M. For founders who exercised options at higher 409A valuations during a late-stage round, or who received significant secondary proceeds that count toward basis, the new cap may reduce their federal tax benefit substantially. The provision applies to stock acquired after January 1, 2026 — existing QSBS holders are grandfathered under prior rules.
R&D amortisation made permanent
Since 2022, Section 174 required domestic R&D expenditures to be amortised over 5 years (15 years for international R&D) rather than deducted in the year incurred. The 2025 bill restores immediate expensing for domestic R&D — effectively reversing the 2022 change. This is material for pre-revenue startups with significant engineering spend. A company spending $1M annually on qualified domestic R&D now deducts the full $1M in year one rather than $200k per year over five years. Cash tax savings in early years can reach $50k–$150k annually depending on the company’s tax position and state treatment.
Bonus depreciation restored
The bill returns 100% bonus depreciation for qualified property placed in service through 2029. For hardware-heavy startups in defense tech, robotics, manufacturing, or data center build-out, this allows full first-year deduction of capital equipment purchases. A $5M server rack or manufacturing line is deductible immediately rather than over 5–7 years under the standard MACRS schedule — a meaningful cash flow benefit that reduces the equity capital required to fund capital-intensive scaling.
State-level SALT implications
The bill raised the SALT (state and local tax) deduction cap from $10k to $40k for married filers. For founders taking meaningful salary in high-tax states like California or New York, this reduces effective federal income tax burden by $5k–$15k annually — real money, but not the primary planning consideration for most high-growth founders whose primary income at exit comes from capital gains rather than salary.
Carried interest unchanged
Despite early legislative proposals, the bill did not modify carried interest taxation. VC fund managers continue to pay long-term capital gains rates on carry held for 3+ years. This means VC fund incentive structures remain unchanged — which indirectly affects founder timelines, since investors whose carry vests over longer periods remain aligned with later exits rather than early liquidations.
What this means for you
If you incorporated a Delaware C-Corp and issued founder stock or granted options before 2026, your existing QSBS eligibility is grandfathered. If you’re incorporating now or issuing new shares after January 2026, model your QSBS benefit under the new $50M cap. If you’re spending heavily on domestic R&D, the restored immediate expensing materially improves your cash position — reforecast your runway with the corrected tax treatment. And if you’re a hardware or defense tech company deploying significant capital equipment, full bonus depreciation through 2029 changes the economics of scaling.
Frequently Asked Questions
Q: What is the new QSBS exclusion limit under the One Big Beautiful Bill 2025? A: Under the One Big Beautiful Bill Act of 2025, the QSBS federal capital gains exclusion under Section 1202 remains at 100% for shares held 5+ years, but is now capped at $50M per taxpayer for stock acquired after January 1, 2026. The previous formula (10x of adjusted basis) allowed unlimited exclusions for high-basis stock. Shares already issued before January 2026 are grandfathered under prior rules — only new issuances are subject to the $50M cap.
Q: How much cash does restored Section 174 immediate R&D expensing save a startup? A: A pre-revenue startup spending $1M per year on qualified domestic R&D can now deduct the full $1M in year one rather than $200k per year over five years. At a 21% corporate tax rate plus applicable state rates, this generates $50k–$150k in additional cash tax savings annually — meaningful runway extension for engineering-intensive startups without requiring additional equity capital.
Q: Does the One Big Beautiful Bill 2025 affect carried interest taxation for VCs? A: No — the final bill left carried interest taxation unchanged. VC fund managers continue to pay long-term capital gains rates (20% federal + 3.8% NIIT = 23.8%) on carry held for 3+ years rather than ordinary income rates (up to 37%). This means VC fund incentive structures, investment timelines, and exit preferences remain identical to pre-2025 law — no change in how investors evaluate or prioritize portfolio liquidity events.
Q: What is 100% bonus depreciation and which startups benefit from it under the 2025 bill? A: Bonus depreciation allows immediate full deduction of qualifying capital equipment and property in the year it is placed in service — rather than depreciating over 5–15 years under MACRS. The 2025 bill restores 100% bonus depreciation through 2029. Startups that benefit most include defense tech, robotics, semiconductor manufacturing, data center infrastructure, and clean energy hardware companies deploying $1M+ in capital equipment — for whom the cash tax savings can be equivalent to 2–4 months of additional runway.
Q: Are QSBS benefits available for founders of companies incorporated outside Delaware? A: QSBS benefits under Section 1202 are available only for C-Corporation stock — not for LLCs, S-Corps, or partnerships. Delaware C-Corps qualify automatically. Non-US entities do not qualify. Founders who have incorporated in a non-C-Corp structure, or who own equity in a non-Delaware entity, cannot exclude capital gains under QSBS regardless of holding period, making Delaware C-Corp incorporation a prerequisite for accessing the exclusion.
CTA: Run your exit scenario through CrackTheDeck with updated 2025 tax assumptions — see how QSBS eligibility, R&D expensing and your entity structure affect your actual take-home at different exit valuations.