Section 1045 Rollover: The 60-Day Rule When You Sell QSBS Early.

A founder takes a term sheet in year three. The company is a domestic C corporation, the stock is qualified small business stock, and the five-year clock in §1202 still has two years left on it. The acquirer wants to close in six weeks. There is one tool that helps, and it runs on a countdown: the Section 1045 rollover 60-day rule.

The statute is short. §1045 says gain from the sale of QSBS held more than six months is recognized only to the extent the amount realized exceeds the cost of replacement QSBS purchased during the 60-day period beginning on the date of the sale. Four conditions do the work, and three of them are where deals go wrong.

The holder has to be someone other than a corporation. Individuals, trusts, and partnerships that pass the gain through to individuals all work. The stock you sold has to be QSBS you held more than six months, and §1045(b)(4) says you measure that period without regard to §1223, so a holding period you inherited from an earlier rollover doesn't carry you across the six-month line. You need six real months in the shares you sold.

The 60 days begin on the date of the sale, not the day escrow releases or the day the wire lands. Sixty calendar days. It is the tightest reinvestment window in this part of the code: a §1031 exchange gives 45 days to identify and 180 to close, and an opportunity zone deferral gives 180. Section 1045 gives 60, with no identification period inside it. The money has to be in replacement stock.

The reinvestment is measured against the amount realized, not the gain, and that is the most expensive misreading of §1045 I see. A founder with $50,000 of basis and $6,050,000 of proceeds who carefully reinvests the $6,000,000 gain still recognizes $50,000. Harmless at that basis. Scale the basis up and the leftover scales with it.

Then §1045(b)(3) reduces your basis in the replacement stock by the deferred gain, in the order the shares were acquired. The gain is deferred, not forgiven. What the election buys is time to reach the §1202 finish line on the new shares.

§1223(13) includes the period you held the original stock in your holding period for the replacement stock. A founder three years into pre-OBBBA QSBS who rolls into new QSBS starts the replacement shares at three years, not at zero, and needs two more to reach the five-year mark in §1202. That tacking is the entire reason the election exists.

One piece doesn't tack. §1045(b)(4)(B) applies the §1202(c)(2) active business requirement to only the first six months of your holding period in the replacement stock. That reads like a break, and it is, but it points at the problem rather than solving it: those first six months are exactly when a company that just raised a round is sitting on a pile of cash.

OBBBA's tiered exclusion, 50% at three years and 75% at four, reads like it made §1045 less necessary. On the calendar it hasn't, yet. Those tiers apply only to stock acquired after July 4, 2025, so the earliest any share reaches the three-year tier is July 2028. Every founder selling QSBS early in 2026 or 2027 is holding pre-enactment stock, and pre-enactment stock is all or nothing at five years. Section 1202 after OBBBA covers what the new numbers do once they start applying. Until then, the rollover is the only thing standing between an early sale and a fully taxable one.

Replacement QSBS has to be acquired at original issue, directly from the corporation, the same as any other QSBS under §1202(c)(1). Buying shares of a promising private company from a departing employee doesn't qualify, however good the company is. That rules out most of what a founder with 60 days and $6 million can actually find, which is why the replacement is usually a new round in a company the seller already knows, a company the seller is starting, or a fund organized to buy qualifying stock.

The other failure is the balance sheet. QSBS requires that at least 80% of the corporation's assets by value be used in an active trade or business. §1202(e)(6) lets working capital count, but once a corporation has been in existence for two years, no more than 50% of its assets can qualify as active by reason of that rule. A two-year-old company that just took your $6 million and hasn't spent it can fail the test on the strength of your own money. Since §1045(b)(4)(B) tests only the first six months, the fix is a spending plan, in writing, before the wire goes out.

Nothing here is automatic. Rev. Proc. 98-48 requires the election on a timely filed return for the year of the sale, including extensions. On Form 8949 you report the sale in full, then enter code R in column (f) and the deferred gain as a negative number in column (g), with a statement describing the sale, the replacement stock, and the dates. Miss it and Treas. Reg. §301.9100-2 gives an automatic six-month extension from the unextended due date, provided you filed on time. Past that you are buying a private letter ruling, which costs real money and takes months you probably don't have.

One question has no answer yet. If pre-enactment QSBS rolls into replacement stock issued in 2026, that replacement stock was acquired after July 4, 2025, which on its face puts it under the $15,000,000 per-issuer cap and the tiered holding period, while §1223(13) hands it a holding period that started years earlier. OBBBA didn't amend §1045, and the IRS hasn't addressed the combination. I plan on the $10,000,000 cap for the deferred gain and treat anything better as upside. I wouldn't sign a document that depends on the answer.