The signing of the Opportunity for Business Builders and Buyers (OBBB) Act into law introduced a major turning point for small-business transactions. Designed to modernize the tax code for main-street and lower-middle-market M&A, the legislation has significant implications for deal structures involving seller financing.
Seller Edge Capital has reviewed the key provisions most likely to influence seller note issuance and structuring. Three material changes in tax treatment are expected to reshape how seller-backed transactions are structured.
Accelerated QSBS Exclusion
The Qualified Small Business Stock (QSBS) program, a longstanding tool for tax-efficient exits, becomes even more powerful under the OBBB framework. Investors can now exclude 50% of capital gains after holding eligible stock for three years, 75% after four years, and 100% after five years. The per-issuer cap also increases from $10 million to $15 million.
These updates enhance the appeal of equity rollovers in buyouts, particularly when used in combination with seller notes. Founders and selling shareholders may be more open to accepting stock-based consideration, knowing that much of their gain can now be shielded under the revised QSBS rules.
This elevates the seller note from a basic financing bridge to a strategic tool that supports better tax outcomes when paired with equity.
Heavier Front-Loaded Deductions
The return of permanent 100% bonus depreciation, along with an expanded Section 179 expensing limit of $2.5 million (with a phase-out beginning at $4 million), provides buyers with substantial upfront tax deductions. These apply to tangible assets placed in service after 2024.
For deals involving seller notes, this change helps offset the gradual amortization of the note. Buyers can shelter early profits more aggressively, which supports stronger purchase offers and accelerates the negotiation process.
For sellers, this may improve the appeal of note-funded deals—especially when these tax benefits are factored into valuation.
More Deductible Interest on Seller Notes
One of the more technical but impactful changes is the reinstatement of Section 163(j) to an EBITDA basis. Previously, interest deductions were limited to 30% of EBIT, which constrained many leveraged transactions. Using EBITDA as the base allows buyers to deduct more interest, especially in asset-heavy businesses.
This adjustment lowers the after-tax cost of debt, making seller notes more affordable for buyers and more likely to bridge valuation gaps. In turn, this increases the chances of deal execution while maintaining pricing alignment.
Impact on Deal Structures and Valuations
These tax changes reduce the difference in outcomes between all-cash and seller-financed deals. For sellers evaluating exit options, an offer with a seller note, equity rollover, or both could now rival or exceed the after-tax results of an all-cash offer.
Buyers, meanwhile, gain new tools to structure competitive offers while protecting investment returns. With enhanced deductibility and tax shields, they can afford to be more flexible on price and terms.
This requires thoughtful planning across all parts of the transaction—from the capital stack and purchase price allocation to personal tax exposure and long-term strategy.
Strategic Guidance from Seller Edge Capital
Seller Edge Capital helps founders and acquirers evaluate the full impact of the OBBB Act on their transaction. We apply institutional-grade underwriting to develop flexible, tax-aware solutions, including:
- Hybrid structures that blend cash, seller paper, and rollover equity
- Partial note buyouts with optional upside participation
- Strategic purchase price allocations aligned with IRS guidelines
As tax policy continues to evolve, seller notes remain a powerful tool for optimizing value while preserving flexibility.
Looking Ahead
The OBBB Act is more than a tax update. It represents a shift in how small-business transactions can be structured for maximum financial efficiency. Seller notes are now positioned to serve not just as deal enablers, but as a core part of thoughtful, tax-smart exit planning.
Founders considering an exit in 2025 or beyond should revisit their assumptions. With a properly structured seller note, today’s transaction may offer better net economics than yesterday’s all-cash deal.
To explore tailored seller note solutions or request a quote, visit www.selleredgecapital.com or contact our team.
Sources Cited
- Goering, M. (2024, April 16). “Congress Passes the Opportunity for Business Builders and Buyers Act.” Forbes. https://www.forbes.com/sites/mikengoering/2024/04/16/congress-passes-obbb-act
- National Association of Manufacturers. “Tax Reform for Manufacturers.” https://www.nam.org/issues/tax-reform
- IRS Section 1202: Qualified Small Business Stock (QSBS). https://www.irs.gov/taxtopics/tc429
- IRS Section 179 Deduction. https://www.irs.gov/publications/p946/ch02.html
- IRS Publication 946: Bonus Depreciation. https://www.irs.gov/forms-pubs/about-publication-946
- IRS Section 163(j) Interest Deduction Limitation. https://www.irs.gov/newsroom/interest-deduction-limitation-irc-section-163j
- U.S. House Committee on Ways and Means. “Summary of the OBBB Act.” https://waysandmeans.house.gov/media-center/press-releases/house-passes-obbb