Section 1045 Rollover: What It Is and Who Can Use One

Section 1045 Rollover: What It Is and Who Can Use One

Selling startup stock early usually means giving up the tax break that made it attractive. A Section 1045 rollover is the part of the code that lets you keep some of it.

The short answer: if you sell qualified small business stock you have held for more than six months, and within 60 days you buy other qualified small business stock, you can elect to defer the gain. The deferred gain rides along in the new stock's basis, and the holding period carries over.

It sounds generous. The catch is almost entirely in the 60 days. Where a startup-focused accounting firm like Iota Finance fits comes at the end.

What a Section 1045 Rollover Does, in Plain Terms

Qualified small business stock, or QSBS, is stock in certain domestic C corporations that meets rules on how it was acquired, what the company does and how large its assets were. Held long enough, it can qualify for a large exclusion of gain under Section 1202.

Section 1045 covers a different situation: you sell before you have held long enough for Section 1202, or you sell and want to stay invested in startups. Instead of paying tax now, you roll the gain into replacement qualified small business stock. You recognize gain only to the extent the sale proceeds exceed what you reinvest.

The limitation: this is a deferral, not an exclusion. The gain is still there, pushed into the new stock. What makes it valuable is that the combined holding period may eventually support a Section 1202 exclusion on the replacement stock, if every requirement is met at the end.

Who Can Use a Section 1045 Rollover

Three conditions do most of the work.

You are not a corporation. The election is for individuals and other noncorporate taxpayers. Pass-through entities can be involved, with their own rules about how the benefit reaches the owners.

You held the stock more than six months. The original stock has to have been QSBS in your hands for longer than six months at the sale.

The replacement stock also qualifies. Replacement qualified small business stock has to meet the QSBS requirements itself, including the active business test during the relevant period. Buying stock in a company that fails that test does not complete the rollover.

The limitation: whether a company's stock is QSBS depends on facts about the issuer you may not control or even see, such as its gross assets when the stock was issued and what share of its assets are used in an active qualified business. Ask the issuer for its position in writing; do not assume.

Why the QSBS Rollover 60 Days Window Is the Hard Part

Sixty days is short.

Finding a qualifying company, negotiating terms, completing diligence and closing a purchase of original-issue stock can take longer than that on its own. The QSBS rollover 60 days clock starts at the sale, so a founder who sells in a secondary transaction and only then starts looking is already behind.

The replacement generally has to be stock acquired at original issuance, bought from the company rather than from another shareholder. That rules out buying shares on a secondary market, which is often the fastest way to deploy cash.

The limitation: the window cannot be extended because the deal you wanted slipped. A rollover that closes late, or reinvests less than the proceeds, leaves part of the gain taxable.

Basis and Holding Period: What Actually Carries Over

The replacement stock's basis is reduced by the gain you deferred. So if you sell for $500,000 with a $100,000 basis and reinvest the full $500,000, your new stock's basis is $100,000, not $500,000. Sell the replacement later without further planning and the old gain comes back.

The holding period of the original stock tacks on to the replacement. That tacking is what can eventually carry the combined holding into Section 1202 territory.

The limitation: tacking does not automatically mean the replacement will qualify for a Section 1202 exclusion at the level you expect. OBBBA changed Section 1202 for stock issued after July 4, 2025, and replacement stock bought today is issued under the new rules, while the original stock may be under the old ones. How those interact for a rollover is exactly the kind of question to put to a professional before you sell, not after.

Where Iota Finance Fits

Iota Finance is a Florida-based accounting firm founded in 2022, with 7 employees, led by Igor Tutelman, CPA, as Managing Partner. It provides monthly accounting, tax and fractional CFO services for small businesses, startups and entrepreneurs, serves clients nationwide, and lists minimums of $200,000 income, $500,000 revenue or $500,000 raised.

A rollover is a return-level election, but it rests on records: when the stock was acquired, what was paid, what the issuer represented about QSBS status, and when the replacement closed. A firm that works with startups and the people who own them is positioned to keep those records together.

Iota Finance has 14 verified client reviews on Sam's List as of 2026-09-30. Each review is submitted by an individual who identifies as a client of the firm and rates it on communication, subject-matter knowledge, and overall satisfaction. Reviews reflect those individual experiences and do not represent an endorsement by Sam's List. Iota Finance is a paid Sam's List member. Ratings and rankings are not indicative of future performance or results.

The limitation, plainly: a seven-person firm founded in 2022 has finite capacity and a short track record, and the listed minimums put smaller clients outside its scope. An accounting firm also does not give investment advice about which replacement company to buy.

Frequently Asked Questions

What is a Section 1045 rollover?

It is an election that lets a noncorporate taxpayer defer gain from selling qualified small business stock held more than six months, by buying replacement qualified small business stock within 60 days. Gain is recognized only to the extent proceeds exceed the reinvestment, and the replacement stock's basis is reduced by the deferred gain.

Does replacement qualified small business stock have to be bought directly from the company?

Generally yes. QSBS status requires stock acquired at original issuance, so replacement stock bought from another shareholder generally does not qualify. That makes the 60-day window harder, because you need a company issuing new shares on your timeline.

Can I use Section 1045 if I held the stock less than six months?

No. The original stock must have been held for more than six months at the sale. Stock held for less than that is outside Section 1045, and the gain is taxed under the ordinary rules for short-term capital gain.

Is the deferred gain ever forgiven?

Not by Section 1045 alone. The gain is deferred into the replacement stock's basis. Whether it is eventually excluded depends on whether the replacement stock later qualifies for the Section 1202 exclusion, under the rules that apply to it, when you sell.

If you are selling startup shares in a tender offer or secondary this year, figure out whether they are QSBS before the sale closes, not after. You can browse accountants on Sam's List, including the firm above.

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About the author: Kimberly Green is cofounder of Sam’s List, a directory and matching platform for financial professionals.