Changes to the Small Business Jobs Act and what it could mean for QSBS

Recently introduced HR 3937 is poised to move through the House of Representative and might mean big changes for Qualified Small Business Stock (better known as QSBS). QSBS are tax codes as defined by the Internal Revenue Code that offer investors major tax benefits. As written in Section 1202, part of the Revenue Reconciliation Act of 1993, QSBS lets shareholders of qualified small businesses realize capital gains without paying taxes if they hold QSBS-eligible stock for at least five years. Now, with the introduction of HR 3937, those benefits may just get even sweeter.

Introduced on June 9, 2023, HR 3937 would amend sections of the Internal Revenue Code related to requirements for reporting certain transactions to the Internal Revenue Service (IRS), the tax treatment of certain capital gains, allowable deductions for depreciation available to small businesses, and opportunity zones and funds. So, in more general terms, what specifically does that mean?

• An increase in the reporting threshold for payments from the current threshold of $600 to $5,000
• A new phased-in exclusion for gains from qualified small business stock from 50% up to as high as 100%: 3 years, 50%. 4 years, 75%. 5 years, 100%.)
• An enhanced benefit under the opportunity zone rules for capital gains derived from certain rural zones
• New reporting rules for certain opportunity zone investments

Retroactive to 2010, these changes could mean a lot more flexibility for investors. Currently placed on the Union Calendar by the House of Representatives, HR 3937 still has a way to go before it becomes the law of the land, so check back for updates or click here to reach out to your member of the House of Representatives.