A company at $52M in aggregate gross assets in 2024 had no QSBS issuance options. The same company at $52M in aggregate gross assets after July 4, 2025 likely does. OBBBA's increase of the §1202 gross-asset threshold from $50M to $75M isn't just a number adjustment. It's the gating question that reopened QSBS for an entire class of growth-stage startups, and it changes the calculus for founders and investors planning Series B, Series C, and bridge-round issuances over the next few years.

This guide walks through what the §1202(d) aggregate gross assets test actually requires, how the OBBBA change treats pre- and post-July-4-2025 issuances differently, the timing nuance founders often get wrong, and the practical scenarios where the new $75M threshold can materially change founder tax outcomes.

What "qualified small business" actually means under §1202

Section 1202 grants its capital-gains exclusion only to stock of a "qualified small business" (QSB). The QSB definition has two pieces: a business-activity test (active trade or business in a non-excluded industry) and a size test. This guide is about the size test.

§1202(d) defines the size test in terms of aggregate gross assets: cash plus the aggregate adjusted bases of the corporation's other property. One wrinkle: property contributed to the corporation is deemed to have a basis equal to its fair market value at the time of contribution (§1202(d)(2)(B)). And there is no reduction for liabilities. It's a gross test, not a net one. For practical purposes, "aggregate gross assets" is closer to gross book value than to fair market value.

The corporation's aggregate gross assets cannot exceed the applicable threshold:

  • For stock issued on or before July 4, 2025: $50M
  • For stock issued after July 4, 2025: $75M, indexed for inflation beginning in 2027

A single cap table can have shares from both regimes. Issuances before July 4, 2025 are tested under the $50M cap; issuances after are tested under the $75M cap.

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The timing test founders often get wrong

A snapshot of the balance sheet on the issuance date would be the intuitive design, and it's how many founders model the test. The statute is stricter. §1202(d)(1) requires that the corporation's aggregate gross assets:

  • Did not exceed the threshold at any time after August 10, 1993 through the issuance date, AND
  • Did not exceed the threshold immediately after the issuance (including the cash or property received in the issuance itself)

Two things follow from this:

1. Past growth matters. Each issuance is tested against the threshold for its own regime, looking back across the company's entire history. Take a company that briefly held $80M in cash from a 2023 venture round before deploying most of it. A 2024 issuance fails, because $80M exceeds the $50M cap. A 2026 issuance fails too, because $80M also exceeds $75M. But the regimes look back separately. A company that peaked at $60M in 2024 (over the old $50M cap) can likely still issue post-OBBBA QSBS, because it never exceeded $75M. That's the generally accepted practitioner reading; the IRS hasn't confirmed it, so treat it as strong but not settled.

2. The issuance itself can blow the test. If a company at $70M of aggregate gross assets raises a $20M Series C entirely in cash, its immediately-after-issuance aggregate gross assets are $90M. The Series C shares fail the $75M test. Not because the company was over the cap before the round, but because the round itself put it over. Practitioners often structure around this by sizing the issuance below the headroom, or by treating the test as a hard cap on round size for QSBS-eligible issuances.

This is one of the few hard-and-fast technical traps in QSBS planning. Get it wrong and an entire issuance can lose QSBS treatment.

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What changed under OBBBA (and what didn't)

OBBBA, enacted July 4, 2025, lifted the cap from $50M to $75M and added an inflation-indexing mechanism beginning in 2027. The change is prospective: it applies to stock issued after July 4, 2025. Pre-existing QSBS (including stock issued on July 4, 2025 itself) continues to be tested under the $50M regime.

What didn't change:

  • The business-activity requirement (active trade or business in a qualifying industry) is unchanged
  • The original-issuance requirement is unchanged
  • The 5-year holding period for full exclusion is unchanged (though OBBBA added tiered exclusion at 3 and 4 years for stock acquired after July 4, 2025)
  • The per-taxpayer exclusion cap changed in parallel: $15M for stock acquired after July 4, 2025, up from $10M
  • The aggregation rules under §1202(d)(3) for parent-subsidiary structures are unchanged

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Note the two different verbs. The gross-asset test keys to when stock is issued; the exclusion cap and the new holding-period tiers key to when stock is acquired. For most original issuances those are the same moment, but the two terms aren't interchangeable.

What practitioners are still working out:

  • The indexing mechanics. Practitioners have flagged an apparent drafting error in OBBBA's indexing language, and Treasury has said it's aware of the issue. Annual adjustments beginning in 2027 are the intended reading, but the mechanics aren't settled.
  • How multiple issuances in close proximity should be tested in the rare case where a company straddles the $75M threshold around a round.

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The aggregation rule: parent-subsidiary structures

Under §1202(d)(3), aggregate gross assets are tested at the consolidated-group level for corporations that own more than 50% of subsidiaries. The QSB issuer's gross assets include its ratable share of the gross assets of every more-than-50%-owned subsidiary.

This matters for two scenarios:

  • Spin-outs and acquihires. A successful subsidiary spun out of a larger corporation can struggle to qualify as a QSB if the parent's gross assets exceed the threshold. The parent's assets count.
  • Holding-company structures. Founders sometimes incorporate as a holding company that owns the operating entity. The holding company's gross assets must include the operating subsidiary's assets for §1202(d) purposes; they're not separate for the size test.

Founders structuring complex cap tables (anything involving subsidiaries, parent-co structures, or eventual spin-offs) should run the aggregate gross assets test at the consolidated level before issuing stock to anyone who wants QSBS treatment.

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The forgiving part: the size test locks in at issuance

One of the few founder-friendly features of §1202 is that the gross asset test applies at issuance, not at exit. Shares that passed the size test when issued keep that qualification regardless of how big the company gets later.

A founder who took shares at incorporation in 2023, when the company had $200K in aggregate gross assets, holds stock that passed the size test, even if the company is now a $500M-revenue business with $400M of gross assets. The holding period still has to run (5 years for full exclusion, with 3- and 4-year tiers for stock acquired after July 4, 2025), and the other QSBS requirements still apply, but the size test is locked in at issuance.

This is why founder stock so often clears the size test: at the moment of incorporation, the company has effectively zero gross assets. The harder question is whether later-issued stock (option exercises, Series A/B/C participation, refresh grants) qualifies, because each issuance is independently tested under the size test as of that issuance date.

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Practical scenarios where the $75M threshold reopens QSBS

Three founder-relevant scenarios where the OBBBA change materially changes the planning:

‍Scenario 1: Series B / C bridge rounds. A company that closed a Series B in early 2025 at $45M of aggregate gross assets had only $5M of headroom under the $50M cap before any new QSBS issuance would fail. A $25M round closing in June 2025 fails the test for those new shares: $45M plus $25M is $70M, over the $50M cap. The same round closing after July 4, 2025 passes: $70M is under the $75M cap, and the new shares can qualify as QSBS.

‍Scenario 2: Option exercises at the size-test threshold. Founders and early employees exercising stock options after the company has grown into the threshold zone benefit substantially. Option exercises are treated as separate issuances for §1202 purposes; the size test is run as of each exercise date. A company at $55M of aggregate gross assets in 2024 caused option exercises to fail the $50M test (and lose QSBS); the same exercises in 2026 at the same $55M pass under $75M.

‍Scenario 3: Refresh grants and secondaries. Refresh grants to executives are independently tested. A 2025 refresh grant at a company near $50M was rolling the dice on QSBS qualification. A 2026 grant at the same company has substantially more headroom under the $75M cap. Similarly, company-facilitated tender-offer reissuances (where the company buys back stock and reissues to new buyers) can preserve QSBS eligibility for the new buyer under the post-OBBBA threshold even when the pre-OBBBA threshold would have failed.

For more on how tender offers and secondaries interact with QSBS qualification, see our founder secondary sales guide.

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The new headroom rule for cap-table planning

The practical consequence of the $50M-to-$75M change is that there's now $25M of additional "QSBS-issuance headroom" for companies in the $40M-$75M aggregate-gross-assets band. That headroom is finite and consumable: a company at $50M of aggregate gross assets has $25M of remaining QSBS issuance capacity before it hits the new ceiling. A company at $70M has $5M.

Two planning implications:

  • Time issuances against the cap. If you're planning multiple issuances over a 12-month window, run the gross-assets math in order. Issuances that fit in the headroom early in the window may not fit later in the window after intervening growth.
  • Size rounds to preserve QSBS optionality. A growth-stage company at $60M of aggregate gross assets contemplating a $20M Series C should weigh whether to raise the full $20M (and fail the §1202 size test on those shares) or size the round to fit under the $75M cap. The post-funding aggregate gross assets matter.

These decisions don't have universally correct answers. They depend on the relative value of QSBS optionality versus the dilution and capital efficiency of the round, and they're worth modeling with the company's tax counsel before the term sheet is signed. But the decision exists, and the OBBBA threshold change reopened it for companies that had previously written it off.

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Common drafting and structural pitfalls

Three patterns account for most of the §1202(d) failures we see:

  • Forgetting the consolidated-group aggregation. Founders structuring as a parent-co holding company without running the consolidated gross-assets test can end up with shares that fail the size test because of the operating subsidiary's assets.
  • Issuing during round close. Stock issued contemporaneously with a large funding event needs the immediately-after-issuance test run, including the new cash on the balance sheet. The "immediately after" language in §1202(d)(1) is unforgiving.
  • Treating the test as a moving target. The test runs as of each issuance date, but the historical condition (no time after August 10, 1993 above the applicable threshold) reaches all the way back. A company that crossed $80M of aggregate gross assets in 2024 fails both regimes: $80M is over the old $50M cap and over the new $75M cap. A company that peaked at $60M in 2024 is in a different position. Its issuances from that point fail the $50M cap, but under the generally accepted reading it can likely still issue post-OBBBA QSBS, because it never exceeded $75M. The IRS hasn't confirmed that reading, so build in some caution.

The historical condition is why a company's peak matters as much as where it sits today. Where you top out determines which doors stay open.

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Inflation indexing starting 2027

OBBBA added an inflation-adjustment mechanism for the $75M cap, effective for taxable years beginning after 2026, so the first adjustment lands in 2027. One caveat: practitioners have flagged an apparent drafting error in the indexing language, and Treasury has said it's aware. Annual increases tied to inflation are the intended reading, but the mechanics aren't fully settled. The 2026 cap is the statutory $75M; 2027 and beyond should be modestly higher.

This is meaningful for companies that brush against the threshold in the second half of the 2020s. A startup at $74M of aggregate gross assets in late 2026 has effectively no headroom for new QSBS issuance, but the same company in early 2027 (after the first inflation adjustment) may have modestly more headroom. It's worth tracking the annual cap update with your CPA and timing issuances to the prevailing year's threshold.

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The bottom line

Three takeaways:

  1. The OBBBA change reopens QSBS for an entire band of growth-stage companies. Companies in the $50M-$75M aggregate-gross-assets range that had effectively closed the door on QSBS issuance now have meaningful headroom under the post-July-4, 2025 regime.
  2. The size test runs as of each issuance date, and each regime looks back over the company's full history. Cross $75M and both doors likely close for future issuances. Cross $50M but stay under $75M and, under the generally accepted reading, only the pre-OBBBA door closes. Plan issuance timing accordingly.
  3. Founder stock usually clears the size test because the company is below the threshold at incorporation. Later issuances (Series A/B/C, option exercises, refresh grants) are independently tested. The fraction of a cap table that qualifies as QSBS is a function of the company's growth curve and the timing of issuances against the size band.

Promissory works with founders and CFOs to map QSBS qualification at the cap-table level, including the gross-asset test on prior and planned issuances, and to structure trust planning around the resulting QSBS-eligible share lots. If you have a Series C or bridge round in planning and want to model QSBS qualification before close, schedule a consultation. See our pricing for transparent fixed fees on cap-table-level QSBS analysis and trust planning.

For more on the OBBBA changes generally, see our OBBBA QSBS overview. For how the gross-asset test interacts with the rest of the QSBS qualification requirements, see QSBS eligibility requirements.

This is general information, not tax or legal advice. The details of your situation matter; confirm them with your own advisors.