October 21, 2026 · 7 min read
What Is a Section 1045 QSBS Rollover? Definition and Examples
How to postpone tax on a gain from selling startup shares by reinvesting in another small company, and what the rules ask of you.
- Taxes
What is Section 1045? It is the US tax rule that lets you postpone tax on a gain from selling qualified small business stock (QSBS). You must have held the shares for more than six months. Within 60 days of the sale, you buy other QSBS. The gain you reinvest is not taxed now. It is carried into the new shares instead.
This matters if you sell startup shares before they qualify for the full Section 1202 exclusion, for example in an early acquisition. A rollover keeps the money working in another small company and carries your holding period with it. The tax is postponed, and it comes due when you sell the new shares without another rollover or exclusion.
>6 months
How long you must hold the QSBS you sell before you can roll the gain over
60 days
Window to buy replacement QSBS, starting on the date of the sale
6 months
Part of the new shares’ holding period that counts for the active-business test
Code R
Form 8949 code for the postponed gain, claimed by the return’s due date including extensions
General Information, Not Tax Advice
This page describes US federal rules as of October 2026. A rollover has to be planned around a 60-day window and a filing deadline. Have a qualified tax adviser review your facts before you sell.
What Is a Section 1045 QSBS Rollover?
A QSBS rollover is an election under Section 1045. You sell qualified stock and use the money to buy new qualified stock. You then report only the part of the gain you did not reinvest. If the new shares cost at least as much as you received, no gain is reported for that year.
The postponed gain does not disappear. It lowers your tax basis in the new shares, the amount the tax code treats as what you paid for them. A lower basis means a larger gain when you sell the new shares later. That later gain may itself be excluded under Section 1202 if the new shares pass its tests.
Your holding period also carries over. Under Section 1223(13), the time you held the old shares is added to the time you hold the new ones. That helps you reach the minimum holding periods of Section 1202 sooner.
Any taxpayer other than a corporation can elect. That includes individuals, trusts and partnerships. Under the Treasury regulation, a partnership can elect, and a partner can also elect on their own share of the gain. Gain that the tax code treats as ordinary income cannot be rolled over.
QSBS Rollover Rules: Six Months, 60 Days and Replacement Stock
- The old shares are QSBSThey meet the Section 1202(c) definition: stock of a qualifying C corporation that you got at original issue. The holding period for the full exclusion does not have to be met.
- You held them more than six monthsSix months or less, and Section 1045 does not apply.
- You buy replacement QSBS within 60 daysThe window starts on the date of the sale. The new shares must be bought, so they get a cost basis, and they must be QSBS when issued.
- The new shares come from the companyQSBS has to be acquired at original issue. Shares bought from another holder in a secondary sale do not qualify as replacement stock.
- The new company passes the active-business testFor this rule, only the first six months of your holding of the new shares are counted.
- You elect on timeThe election is made on your return for the year of the sale, filed by its due date including extensions.
The rule that the new shares must come from the company is easy to miss. A purchase in the market for secondaries is not original issue. The tests the new company must pass are the same as for any QSBS and are listed in QSBS requirements. Its gross assets are judged under the QSBS asset test on the day it issues the shares to you.
How a Rollover Works with the Section 1202 Exclusion
Section 1202 excludes gain only after a minimum holding period. For stock acquired after July 4, 2025, that is three years for a 50% exclusion, rising to 100% at five years. Earlier stock needs more than five years. Sell sooner, and Section 1202 excludes nothing. Section 1045 fills that gap from month seven onward.
For Section 1202, the date you acquired the new shares is generally the first day you held the old ones. Section 1202(a)(6)(B) counts that date after the holding period has carried over. So if the old shares were bought on or before July 4, 2025, the old Section 1202 rules may apply to the new shares too. This interaction is recent, so have an adviser confirm how it applies to you.
A Section 1045 rollover postpones the tax and carries your holding period into new QSBS. The tax is settled later, when you sell the new shares, unless Section 1202 excludes that gain.
A Worked Example: Postponing a $1 Million Gain
An investor buys $200,000 of preferred stock directly from Company A in March 2024. It is QSBS. In October 2026, Company A is acquired, and the investor sells the shares for $1.2 million. The gain is $1 million. The investor has held the shares for about two and a half years, so Section 1202 excludes nothing yet.
Illustrative figures for a hypothetical investor. Basis is the cost of the new shares minus the gain postponed: $1.2M − $1M and $700,000 − $500,000. Tax amounts are not shown
Computed on 26 USC 1045(a), (b)(3) and 26 USC 1223(13) · rules as of October 2026
In the partial case, the investor reports the $500,000 not reinvested. In both rollover cases the basis is $200,000, the same as the original purchase. The whole $1 million gain is still embedded in the new shares. Because the holding period runs from March 2024, the new shares pass five years of holding in March 2029.
How to Claim a QSBS Rollover on Your Return
You claim the rollover on the return for the year of the sale. Per the Schedule D instructions, you report the sale on Form 8949 as usual. You enter code R in column (f) and the postponed gain as a negative number in column (g).
The deadline is the due date of that return, including extensions. If you filed the original return on time, the instructions allow an election on an amended return. It must be filed within six months of the due date, excluding extensions, and marked “Filed pursuant to section 301.9100-2.”
- Sale records
- The closing statement or broker record with the sale date and proceeds.
- Proof the old shares were QSBS
- Purchase agreement from the company and a statement of its gross assets on the issue date.
- Proof of the purchase in time
- Subscription documents for the new shares dated within 60 days of the sale.
- Proof the new shares are QSBS
- A statement from the new company covering the asset and active-business tests.
Section 1045 Rules as of October 2026
Section 1045 rollover rules for US federal tax
As of October 2026 · 26 USC 1045, 1223, 1202 (Cornell LII) · 26 CFR 1.1045-1 · IRS Instructions for Schedule D (2025)
Common Mistakes with a QSBS Rollover
- Missing the 60-day windowThe clock starts on the sale date. A replacement bought on day 61 does not count.
- Buying in a secondary saleReplacement shares must come from the company at original issue. Shares bought from another holder fail.
- Selling too earlyShares held six months or less cannot be rolled over.
- Treating the gain as forgivenThe gain moves into the new shares through a lower basis. It is taxed when you sell them unless an exclusion applies.
- Forgetting the electionThe rollover is not automatic. Without code R on Form 8949 by the deadline, the gain is taxed in the year of the sale.
The Terms This Page Uses
- Section 1045 rollover
- An election to postpone gain on QSBS held more than six months by buying other QSBS within 60 days.
- QSBS
- Qualified small business stock under Section 1202. Its gain can be partly or fully excluded from federal tax.
- Replacement stock
- The new QSBS bought within the 60-day window. Its basis is reduced by the gain postponed.
- Tax basis
- The amount the tax code treats as what you paid for an asset. Gain is the sale price minus basis.
- Original issue
- Acquiring shares from the company itself. A purchase from another holder is not original issue.
- Holding period
- How long you have owned the shares. In a rollover, the old period is added to the new one.
Questions About Section 1045 Rollovers
Related: QSBS stacking, QSBS attestation letters, cost basis and the net investment income tax.
Where Every Rule on This Page Comes From
Every rule was last checked on October 21, 2026, against the US Code, the Treasury regulation and the IRS. Rules are US federal. The investor in the example is illustrative. State tax is not covered.
- 01US Code (Cornell LII)Current law26 USC 1045 — more than 6 months, 60-day window, gain limited to proceeds over replacement cost, basis reduction, first 6 months for the active-business test, no ordinary income
- 02US Code (Cornell LII)Current law26 USC 1223(13) — holding period of replacement stock includes the period of the stock sold
- 03US Code (Cornell LII)Current law26 USC 1202(a)(5)–(6), (d) — holding periods, acquisition date after section 1223, asset test
- 04Code of Federal Regulations (Cornell LII)Current26 CFR 1.1045-1 — elections by partnerships and partners, time and manner
- 05Internal Revenue Service2025Instructions for Schedule D (Form 1040) — rollover of gain from QSB stock, code R, election deadline, amended-return relief
This page explains how a market works. It is not investment advice, not a recommendation of any security, strategy or company, and not an offer to sell or a solicitation to buy anything. Private companies may never list or be acquired, positions in them can be illiquid for years, and the entire amount invested can be lost. Figures are accurate as of the dates shown and change. Requirements for investor status, and the tax treatment of a private holding, differ by jurisdiction — the jurisdiction is named wherever this page discusses either. Prepared by the AXEVIL Capital research team. Tax rules described here are United States federal rules unless another jurisdiction is named; they change every year and depend on your own facts. Nothing here is tax advice — take your documents to a qualified adviser.
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Where to go from here
TaxesWhat Is Qualified Small Business Stock (QSBS)? Definition and ExamplesWhat is QSBS? Qualified small business stock can take the federal tax off part or all of a startup gain. Which shares qualify and how much gain is excluded.
TaxesWhat Are the QSBS Requirements? Definition, How They Work and ExamplesQSBS requirements are the tests a share must pass for the Section 1202 tax break: the company, its size, how you got the shares and how long you hold them.
TaxesWhat Is QSBS Stacking? Definition, How It Works and ExamplesQSBS stacking spreads qualified stock across several taxpayers, often trusts, so each can claim its own tax-free cap. How it works and where the limits are.