The following statement is attributed to Kate Tummarello, Executive Director of Engine:
Statement:
"U.S. startups drive innovation and job creation—but launching and scaling a startup is a risky endeavor for founders and their employees. The tax treatment of Qualified Small Business Stock incentivizes innovators to build companies, helping founders attract key talent and investment. The Small Business Investment Act would build on the impact of QSBS in the startup ecosystem by providing greater flexibility and expanding eligibility. We are grateful to Rep. Kustoff for his leadership on this issue and his support of the U.S. startups ecosystem."
Background:
Rep. David Kustoff (R-Tenn.) introduced H.R. 1199, the Small Business Investment Act of 2025, to bolster the tax treatment of Qualified Small Business Stock (QSBS), including by expanding eligibility and by providing startups with more flexibility.
QSBS tax treatment incentivizes investment in startups and helps them recruit talent by allowing investors in certain startups to exclude all or part of their capital gains incurred from selling equity held for at least 5 years. Currently, only C-corporations are eligible to take advantage of this tax treatment.
H.R. 1199 would change the holding period for QSBS from 5 years to 3 years, phasing in the gain exclusion. It would also expand eligibility to more companies, including S corporations, and would permit convertible debt to count towards the holding period.
