Here’s What the “One Big Beautiful Bill” Means for Startups & Investors

Officially signed on July 4, 2025, the One Big Beautiful Bill Act (OBBBA or the Act) affects entrepreneurs, investors, companies, and other startup stakeholders, including with respect to companies participating in tech, biotech, and other high-growth sectors.

Below is a brief summary of several of the most notable provisions from the OBBBA:

1.     QSBS Eligibility Expanded: A Major Win for Investors

• The qualified small business stock (QSBS) exemption under Section 1202 remains intact and is now more generous:
  • The gross asset limit for eligibility increased from $50M → $75M (adjusted for inflation starting 2027), meaning larger, fast-scaling startups are generally more likely to be eligible to issue QSBS.
  • Tiered exclusions based on holding period (subject to further IRS guidance):
    • Three years: 50% gain exclusion
    • Four years: 75% gain exclusion
    • Five years: 100% gain exclusion
  • Higher cap on excludable gain for QSBS acquired post-enactment: $15M per-issuer cap (adjusted for inflation starting 2027). The long-standing 10-times-basis limitation is unchanged.
• Why it matters:
  • Creation of a tiered gain-exclusion regime that allows 50% and 75% exclusions after three-year and four-year holding periods, respectively, allows investors an opportunity to claim a partial QSBS tax benefit even if such QSBS is not held for the full five-year holding period required to receive 100% gain exclusion.
  • Founders, early employees, and angel and other early-stage investors can exclude up to $15M (or 10x basis) in capital gains from federal tax with respect to the sale or exchange of QSBS acquired post-enactment that is held for applicable holding periods.
  • The asset cap increase helps mid-growth startups stay eligible to issue QSBS longer, especially post-Series A or B.

2.      Carried Interest Lives On

• The bill does not close the carried interest loophole.
• Venture capital and private equity firms can still treat carried interest as long-term capital gains instead of ordinary income.

3.     The 20% Qualified Business Income Tax Deduction Is Now Permanent

• The qualified business income (QBI) deduction under Section 199A, which allows pass-through entities like LLCs and S corps to deduct 20% of qualified income, has been permanently extended and is no longer set to expire in 2025.
  • Impact: Founders who structure their company as a pass-through entity, such as an LLC or S corp, now have certainty that the QBI deduction will be available indefinitely in the future.
• The Act also modifies (generally in a taxpayer-favorable manner) various thresholds and calculations relevant to computing the QBI deduction.

4.     R&E Expensing Is Back—and Fully Deductible

• The law repeals the five-year amortization rule from the 2017 Tax Cuts and Jobs Act and permanently restores immediate expensing of U.S.-based research or experimental expenditures (R&E costs), retroactive for certain small business taxpayers to 2022.
• Why this matters for startups:
  • Lower taxable income = lower burn.
  • More runway to fund engineers, product development, and MVP testing.
  • Potentially significant relief for early-stage startups that historically couldn’t benefit from the R&D credit due to no profits.

5.     SALT Deduction Cap Raised to $40K

• The Act raises the state and local tax (SALT) deduction from $10K → $40K for households earning under $500K.
• Impact for startup teams:
  • Founders and early employees in high-tax states (CA, NY, MA, WA) get meaningful relief.
  • May influence hiring, HQ decisions, and relocation strategies for scaling companies.

6.     Bonus Depreciation Extended Through 2026

• The Act restored and extended 100% first-year depreciation on qualified property (equipment, hardware, machinery, software systems) through 2026.
• This may be especially helpful for:
  • Robotics, biotech, manufacturing, agtech, and clean energy startups with heavy CapEx.
  • Labs and R&D startups outfitting physical space.

7.     Clean Tech Incentives Rolled Back

• Some Inflation Reduction Act provisions were repealed or scaled down:
  • Cuts to electric vehicle credits, hydrogen production credits, and other clean energy incentives.
• Impact: Climate and sustainability startups may face reduced federal support and need to rely more on state programs or international markets.

Final Thoughts:

The Act potentially significantly affects entrepreneurs, investors, companies, and other startup stakeholders. Further guidance may be forthcoming from the Treasury Department or the IRS on the various provisions of the Act. In the interim, entrepreneurs, investors, companies, or other startup stakeholders may wish to consult with corporate and tax counsel to review the applicability of the Act’s provisions to their particular circumstances and to ensure that, where possible, such parties are capturing available benefits under the Act.

Please reach out to any member of our Emerging Companies & Venture Capital or Federal Income Tax groups if you have questions about how the Act may affect your specific situation.