Section 1045 Rollover: An Exit Valve When You Can't Wait
If you need to sell QSBS before the 5-year holding period, Section 1045 lets you defer (not exclude) the gain by reinvesting in another QSBS.
1045 vs 1202: Critical Difference
Section 1202 (Full QSBS)
- Requires 5-year holding period
- Excludes gain entirely (tax-free)
- Up to $10M+ exclusion
- Best outcome if you can wait
Section 1045 (Rollover)
- Only need 6+ months holding
- Defers gain (pay later, not never)
- Must reinvest within 60 days
- Emergency option when you can't wait
How Section 1045 Works
Sell Your QSBS After 6 Months
You must have held your original QSBS for at least 6 months (not 5 years). This triggers an "eligible" sale under Section 1045.
Reinvest in New QSBS Within 60 Days
Use the sale proceeds to buy stock in another company that qualifies as QSBS. The 60-day clock starts on the sale date.
Strict deadline: Miss the 60-day window and you lose the rollover option entirely. Plan ahead.
Basis Carries Over to New Stock
Your cost basis in the old stock becomes the basis in the new stock. The gain is deferred until you sell the replacement stock.
Holding period benefit: Your old holding period "tacks on" to the new stock. If you had 3 years in the old QSBS, you only need 2 more years in the new one to hit 5 years for Section 1202.
Example: 1045 Rollover in Action
Situation: You hold QSBS in StartupCo for 3 years (cost basis: $50K, current value: $500K). StartupCo is being acquired and you have no choice but to sell.
Without 1045: You'd owe capital gains tax on $450K gain (~$107K at 23.8% federal rate). No QSBS exclusion because you didn't hit 5 years.
With 1045: Within 60 days, you invest $500K in NewStartupCo stock (which also qualifies as QSBS). Your $450K gain is deferred. Your basis in NewStartupCo is $50K (the original basis).
The payoff: After 2 more years in NewStartupCo (5 total with tacking), you can sell and potentially exclude the gain under Section 1202. The $450K gain that was deferred could become tax-free.
Section 1045 Requirements
For the Stock You're Selling:
- Must be QSBS (meet Section 1202 company requirements)
- Held for at least 6 months
- Acquired at original issuance
For the Replacement Stock:
- Must also be QSBS (different company)
- Purchased within 60 days of sale
- Also acquired at original issuance
When to Consider 1045
Good Scenarios:
- Company is being acquired before 5 years
- You need liquidity but have another QSBS opportunity lined up
- You're confident in the replacement company's QSBS eligibility
- You can invest the full proceeds (not just the gain)
Poor Scenarios:
- No qualifying replacement company available
- You need the cash and can't reinvest
- You're uncertain about replacement company's QSBS status
- The 60-day window is too tight
Important Limitations
- 1.Only individuals: Corporations and most other entities cannot use Section 1045.
- 2.Full reinvestment: You must reinvest the entire sale proceeds (not just the gain) to defer the full amount.
- 3.New company risk: If the replacement company fails or doesn't qualify as QSBS, you've lost the deferral benefit.
- 4.Deferral, not exclusion: You're kicking the can down the road. The gain is still there until you get to Section 1202.