Updated December 2025

Selling Before 5 Years? You Have Options.

If you have to sell your startup stock before the 5-year QSBS holding period is complete, you lose the exclusion. But there are ways to preserve some benefit—or buy yourself more time.

Here's what actually works.

The Reality of Early Sales

QSBS is all or nothing. Sell on day 1,824 of a 1,826-day requirement (5 years), and you get zero exclusion. The full gain is taxable.

On a $2M gain, that's the difference between $0 federal tax and ~$476,000 in federal tax.

Two days. Half a million dollars.

Option 1: Section 1045 Rollover

If you've held your QSBS for at least 6 months, you can defer the gain by reinvesting in replacement QSBS within 60 days.

How it works:

1.You sell QSBS that you've held for at least 6 months (but less than 5 years)
2.Within 60 days, you reinvest the proceeds in new QSBS
3.Your original holding period transfers to the new stock
4.When the combined holding period hits 5 years, you can sell with the full exclusion

The catch:

Finding qualifying replacement QSBS isn't easy. It must be stock in a C-corp with less than $50M in assets at issuance. You can't just buy public stock. Most people use this to invest in another startup—which means you need to find one accepting investment on your timeline.

This is deferral, not exclusion. You're kicking the can down the road, which is fine if you believe you'll eventually hold for 5 years total.

Option 2: Negotiate Deal Timing

If you're close to the 5-year mark, the deal structure can push your gain recognition past the line.

Installment Sale

Receive payment over time. Gain is recognized as you receive payments, not at closing. If your first payment comes after the 5-year mark, that portion qualifies.

Earnout Structure

Contingent payments based on milestones. If the contingency resolves after your 5-year date, that portion may qualify. Talk to a tax attorney about timing.

Deferred Closing

If you're weeks away, sometimes the deal can be structured to close after your date. This is rare in M&A but possible in secondary sales.

Reality check: You probably can't control the deal timeline. If a company is selling, you're along for the ride. But if you have any leverage—founder shares, board seat, or it's a secondary transaction—it's worth asking.

Option 3: Just Wait

If the deal hasn't closed yet and you're close, see if you can hold out.

Example: You exercise options on March 15, 2021. Your 5-year mark is March 15, 2026. The company is selling with a February 2026 close date. Ask your CFO if there's any flexibility on closing dates—sometimes there is, especially for larger shareholders.

A few weeks of delay could be worth hundreds of thousands of dollars. Make sure the acquirer and board know what's at stake for affected shareholders.

When Do You Actually Qualify?

Enter your stock details to see your exact qualification date and how much is at stake.

QSBS Savings Calculator

Estimate your Section 1202 tax savings in 60 seconds

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Your Stock

Stock Type

Different stock types have different holding period rules

How Acquired

Key Dates

Your holding period starts at EXERCISE, not grant. This is the #1 mistake people make.

Grant Date

Exercise Date

When you paid to convert options to shares

Expected Sale Date

When you expect to sell (exit, IPO, secondary, etc.)

Value

Cost Basis

What you paid, or the value included in your income

Expected Sale Value

Your Location

State of Residence

Your state at time of sale determines tax treatment

What Doesn't Work

Partial sales

Selling half your shares early doesn't give you half the exclusion. Each share has its own holding period.

Gifting and buying back

The IRS sees through this. Related party rules apply.

Accelerating the clock

There is no mechanism to speed up the holding period. 5 years means 5 years.