The MSO-PC model remains the prevailing structure in Healthtech, especially when navigating the restrictions of the corporate practice of medicine. Healthtech startups using MSO-PC models can structure their MSO entities to qualify for Qualified Small Business Stock (QSBS) treatment, while keeping the PC compliant with medical practice laws. The One Big Beautiful Bill Act, commonly referred to as the OBBBA or OB3, signed into law on July 4, 2025, significantly expands the tax benefits under Section 1202 for QSBS. This provision can be highly relevant for MSOs and physician-owners participating in equity-based growth strategies.
Changes Under the OBBBA
The OBBBA makes three significant changes to the rules governing QSBS:
1. Higher Exclusion Cap
The cumulative per-issuer gain limit has increased from $10 million to $15 million and will be indexed for inflation beginning in 2027 for QSBS issued on or after July 5, 2025. This means founders and investors can exclude up to $15 million in capital gain from federal tax, or 10 times their basis in the stock — whichever is greater. Most taxpayers will be limited by the $15 million limit (rather than the annual 10-times-basis rule) because most startups are funded with a nominal amount of cash. Keep in mind, however, that this new cap applies only to stock issued after July 4, 2025, and that companies cannot just redeem “old” stock and issue “new” stock because there are redemption rules that could prevent the new stock from qualifying.
2. Tiered Holding Periods
Previously, investors had to hold QSBS for five years to receive any exclusion. The OBBBA introduces a tiered schedule:
- 3 years → 50% exclusion
- 4 years → 75% exclusion
- 5+ years → 100% exclusion
This expands the number of taxpayers who can benefit from a QSBS exclusion and does not require them to go through the hoops of a qualified rollover under section 1045 if they sell before the five-year holding period requirement is met. Notably, the new rule applies only to stock issued on or after July 5, 2025. Thus, a company can issue new stock to its investors that meets this requirement, but stock issued before July 5, 2025, remains subject to the five-year holding period requirement. Companies can restructure their operations to qualify “old” stock, but as mentioned above, there are redemption rules that need to be navigated.
3. Expanded Eligibility
The gross asset threshold for qualifying businesses has increased from $50 million to $75 million, enabling more mature Healthtech startups and MSOs to potentially qualify for QSBS treatment. This rule, however, like the changes discussed above, applies only to stock issued on or after July 5, 2025.
Key Takeaways
The OBBBA introduces the most significant expansion of the QSBS exclusion in years. The QSBS exclusion was extremely taxpayer-friendly before the OBBBA, and it has now been expanded even further.
Author: Alex Stapienski | [email protected]
Contact Us
For more information on this topic, please contact a member of Withum’s Digital Health Services Team.
