Section 1045 rollover — definition & guide

An election to defer gain on QSBS held more than six months by reinvesting the proceeds into new QSBS within 60 days. Preserves the original holding period toward the five-year Section 1202 clock.

Section 1045 lets a taxpayer sell QSBS before meeting the five-year holding requirement and roll the gain into new QSBS within 60 days, deferring federal tax. The holding period of the old stock tacks onto the new stock, which preserves progress toward the Section 1202 five-year clock. Any proceeds not reinvested are taxable to the extent of gain.

Example: a seed-stage founder sells four-year-old QSBS for $3 million with $2.9 million of gain. Within 60 days she reinvests $2.9 million into shares of a new qualifying C-corp startup. The original $2.9 million gain is deferred, and her five-year clock on the new stock begins with four years of credited holding, leaving only one year until full Section 1202 exclusion.

Common mistake: missing the 60-day window or reinvesting into an LLC or S corp, which does not qualify. The target company must be a C corporation meeting the QSBS tests at the time of issuance.

Section 1045 matters when an involuntary exit, tender offer, or acquisition forces a sale before year five. It also matters when an investor wants to recycle gains into a new venture without losing the exclusion.