Small Business Investment Act of 2025

Section 1202(a)(1) of the Internal Revenue Code of 1986 is amended—

(1) by striking 50 percent and inserting the applicable percentage, and

(2) by striking held for more than 5 years and inserting held for at least 3 years.

Section 1202(a) of such Code is amended by adding at the end the following new paragraph:

Except as provided in paragraphs (3) and (4), the applicable percentage under paragraph (1) shall be determined under the following table:

Years stock held: Applicable percentage: 3 years 50% 4 years 75% 5 years or more 100%

Section 57(a)(7) of such Code is amended by striking An amount and inserting In the case of stock acquired on or before the date of the enactment of the Creating Small Business Jobs Act of 2010, an amount.

Section 1202(a)(4) of such Code is amended—

(A) by striking, and at the end of subparagraph (B) and inserting a period, and

(B) by striking subparagraph (C).

(1) Section 1202(a)(4) of such Code is amended by inserting and before the date of the enactment of the Small Business Investment Act of 2025 after Act of 2010.

(2) Paragraphs (3) and (4) of section 1202(a) of such Code are each amended by inserting held for more than 5 years and after In the case of qualified small business stock.

(3) Section 1202(a)(3)(A) of such Code is amended to read as follows:

(A) the applicable percentage under paragraph (1) shall be 75 percent, and

(4) Section 1202(a)(4)(A) of such Code is amended to read as follows:

(A) the applicable percentage under paragraph (1) shall be 100 percent, and

(5) Section 1202(b)(2) of such Code is amended by striking more than 5 years and inserting at least 3 years.

(6) Section 1202(g)(2)(A) of such Code is amended by striking more than 5 years and inserting at least 3 years.

(7) Section 1202(j)(1)(A) of such Code is amended by striking more than 5 years and inserting at least 3 years.

Except as provided in paragraph (2), the amendments made by this section shall apply to stock acquired after the date of the enactment of this Act.

The amendment made by subsection (c) shall take effect as if included in the enactment of section 2011 the Creating Small Business Jobs Act of 2010.

Section 1202(f) of the Internal Revenue Code of 1986 is amended—

(1) by redesignating paragraphs (1) and (2) as subparagraphs (A) and (B) and moving such subparagraphs (as so redesignated) 2 ems to the right,

(2) by striking conversion of other stock.—If any stock and inserting the following:

(2) conversion.—

If any stock

(2) , and

(3) by adding at the end the following new paragraph:

If any stock in a corporation is acquired by the taxpayer, without recognition of gain, solely through the conversion of a qualified convertible debt instrument—

(i) the stock so acquired shall be treated as qualified small business stock in the hands of the taxpayer, and

(ii) the stock so acquired shall be treated as having been held during the period during which the qualified convertible debt instrument was held.

For purposes of this paragraph, the term qualified convertible debt instrument means any bond or other evidence of indebtedness—

(i) which is originally issued by the corporation to the taxpayer,

(ii) the issuer of which—

(I) from issuance until conversion, is a qualified small business, and

(II) during substantially all of the taxpayer’s holding period of such bond or evidence of indebtedness, the corporation meets the active business requirements of subsection (e), and

(iii) which is convertible into stock in the corporation.

The amendments made by this section shall apply to debt instruments originally issued after the date of the enactment of this Act.

Section 1202(c) of the Internal Revenue Code of 1986 is amended—

(1) by striking C corporation in paragraphs (1) and inserting corporation, and

(2) by striking and such corporation is a C corporation in paragraph (2)(A).

Section 1202(d)(1) of such Code is amended by striking which is a C corporation.

Section 1202(d)(3) of such Code is amended by adding at the end the following new subparagraph:

Any determination of the members of a controlled group of corporations under this paragraph shall include taking into account any stock ownership in an S corporation.

Section 469(g)(1) of such Code is amended by adding at the end the following new subparagraph:

In the case a disposition any gain from which is excluded from gross income under section 1202, subparagraph (A) shall not apply.

Section 1202(e) of such Code is amended by adding at the end the following new paragraph:

In the case of an S corporation, the requirements of this subsection shall be applied at the corporate level.

The amendments made by this section shall apply to stock acquired after the date of the enactment of this Act.