Tax break for investors in small business stock—at the cost of federal revenue.
H.R. 1199 — Small Business Investment Act of 2025 · Filed by David Kustoff (R-TN) · Introduced Feb 11, 2025 · Referred to committee
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What it does
This bill expands the tax break for gains on small business stock by lowering the holding period from 5 years to 3 years, increasing the exclusion percentage on a sliding scale (50% at 3 years, 75% at 4 years, 100% at 5+ years), and extending the benefit to S corporations and convertible debt instruments. Investors in qualifying small businesses will owe less federal tax on profits when they sell, with the largest gains going to those who hold longer.
Why we flagged it
The bill's operative mechanism is a reduction in federal tax liability on investment gains from small business stock. Despite the 'small business' framing, the beneficiary is the investor (not the business), and the benefit is a tax exclusion (not a subsidy or direct support). This is a tax expenditure—foregone revenue—that accrues to capital holders.
What the text implies
- Convertible debt tacking (Section 3) allows investors to hold debt instruments and 'tack' that holding period onto the stock acquired upon conversion, effectively allowing investors to meet the 3-year threshold faster by holding debt instead of equity—a technical advantage not obvious from the title.
- S corporation inclusion (Section 4) extends the benefit to pass-through entities, which may allow high-income individuals to structure business ownership to capture the exclusion while maintaining operational control—a planning opportunity not highlighted in the bill's name.
- Passive loss disallowance (Section 4(d)) prevents passive-loss deductions from offsetting gains excluded under Section 1202, which may reduce tax-planning flexibility for investors but is buried in conforming amendments.
- The 3-year holding period (vs. 5 years previously) significantly accelerates the tax benefit, allowing investors to realize gains sooner—a material change in the time value of the tax deferral.
Section numbers refer to the bill text the analysis read — linked under Primary records below.
Who it affects
The bill reduces federal tax revenue by expanding a capital gains exclusion that primarily benefits investors and business owners with disposable income to hold equity stakes. While framed as small-business support, the mechanism is a tax cut for capital gains—a form of income that flows disproportionately to higher-income households—not a direct subsidy to small businesses or workers.
Who stands to gain
- Individual investors in small business stock
- Business owners and founders selling equity stakes
- Venture capital and private equity investors
- High-net-worth individuals with small-business holdings
Named in the bill
Internal Revenue Code Section 1202, Section 57(a)(7) (alternative minimum tax), Section 469 (passive activity losses), Creating Small Business Jobs Act of 2010, S corporations, C corporations, Qualified small business stock
Where it stands
- Feb 11, 2025 — Introduced · Congress.gov: “Introduced in House”
- Feb 11, 2025 — Referred to House Committee on Ways and Means · Congress.gov: “Referred to the House Committee on Ways and Means”
Dates and quoted wording are Congress.gov's action record; the timeline shows status changes, not every procedural step.
Money around this bill
5 lobbying clients named this bill on 7 disclosure filings across 3 quarters, Jun 2025 to Jun 2026. Those filings disclosed $22,744,887 in lobbying spend. A filing names 21 bills on average, so that figure is what each filing reported, not a share belonging to this bill.
More lobbying clients named this bill than 78% of bills with at least one filing.
David Kustoff, the sponsor, reported $1,066,250 in PAC receipts in the 2026 cycle.
- Chamber of Commerce of the U.S.A. — $17,960,000 on 1 filing
- Alzheimer's Association — $3,590,000 on 2 filings
- National Venture Capital Association — $1,173,637 on 1 filing
- Job Creators Network — $11,250 on 2 filings
- Angel Capital Association — $10,000 on 1 filing
Lobbying Disclosure Act filings through Jul 20, 2026. A filing shows who paid to lobby on a bill it names, not what changed.
How this was measured
Analysis — Quorum's AI read the bill text published by Congress.gov (5,826 characters) on Sep 28, 2026. Section numbers in the findings refer to that text, linked below; transparency and hidden-provision scores are compared against the median of 16,222 analysed bills.
Status and sponsors — Congress.gov's bill record — actions, committee referrals and cosponsors — loaded nightly. The timeline shows status changes, not every procedural action.
Money — Senate Lobbying Disclosure Act filings whose specific-issue field names this bill for quarters ending Jun 2025 to Jun 2026. A filing's amount is reported whole beside the median number of bills a filing names; it is never divided across them. PAC receipts are FEC-reported contributions to the sponsor's candidate committee in the 2026 cycle.
As of — lobbying records through Jul 20, 2026 · page rendered 2026-10-20.
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