Small Business Investment Act of 2025

House Votes

This bill updates the tax break for people who invest in small businesses. It would raise how much of your profit can be tax‑free when you sell qualified small business stock, and it shortens the holding time from more than 5 years to at least 3 years. Instead of a flat 50% exclusion, the law would use an “applicable percentage” set in a table, phasing in higher amounts over time. Most of these changes would apply to stock you acquire after the bill becomes law.

The bill also helps people who hold certain convertible notes from a qualifying small business. If you convert that note into stock, the stock would count as qualified small business stock, and the time you held the note would count toward the 3‑year holding period. This applies to notes first issued after the bill becomes law.

It clarifies how the rules work for corporations, including S‑corporations. It tells the IRS to include S‑corp ownership when deciding which companies are part of the same controlled group, applies certain tests at the S‑corp level, and says the usual “passive loss” rule at sale does not apply when your gain is excluded under these small‑business stock rules. These changes would apply to stock acquired after the bill becomes law. The bill also keeps an older rule in place so that certain stock acquired on or before the 2010 small‑business law continues to avoid an alternative minimum tax preference; that part applies as if it had been in the 2010 law all along.

Key points

• Who is affected: Investors, founders, and employees who hold small‑business stock; small businesses organized as corporations, including S‑corps .
• What changes: Shorter holding time (3+ years), phased‑in higher exclusion percentage, “tacking” the holding period for certain convertible notes, and clearer rules for S‑corps and related companies; passive‑loss rule at sale does not apply when the gain is excluded .
• When: Generally for stock or notes acquired/issued after the law takes effect; one AMT‑related rule applies retroactively to align with a 2010 law .