Last reviewed: July 2026
IRC 1045 gives a non-corporate taxpayer who sells IRC 1202 QSBS exclusion-eligible stock a mechanism to defer -- not permanently exclude -- the recognized gain by reinvesting in replacement qualified small business stock (QSBS) within a strict 60-day window. The provision is purpose-built for the interval between the six-month threshold (when a rollover becomes available) and the five-year mark (when a permanent IRC 1202 exclusion matures). It lets an investor who needs liquidity before a QSBS position fully seasons move the economic gain into a new position without a current tax cost, provided the reinvestment meets every statutory condition.
Understanding IRC 1045 requires holding two distinctions clearly. First, deferral is not exclusion: the gain is preserved inside the replacement stock's reduced basis and will be recognized on a future sale unless the taxpayer elects another rollover or achieves IRC 1202 exclusion eligibility on the replacement stock. Second, the One Big Beautiful Act of 2025 (OBBBA) restructured core QSBS parameters effective for stock issued on or after July 4, 2025, creating a dual-regime environment that complicates every rollover crossing that date boundary. Practitioners advising on IRC 1045 QSBS rollovers must now track not only the original holding period and the 60-day window, but also which regime governs each stock position in a chain of rollovers.
This guide covers the basic rollover mechanics under IRC 1045, the requirements for qualified replacement stock, the OBBBA dual-regime analysis practitioners need for 2025-and-beyond transactions, the decision framework for choosing between IRC 1045 and IRC 1202 (and stacking both), partnership pass-through complications, and the documentation checklist that supports a defensible rollover election. All statutory figures and thresholds should be verified at IRS.gov; the OBBBA provisions are recently enacted and IRS transition guidance on dual-regime rollovers had not been issued as of July 2026.
The IRC 1045 election is available to any taxpayer other than a corporation. Eligible electing taxpayers include individuals, partnerships (at the partner level), S corporations (at the shareholder level in limited circumstances), trusts, and estates. A C corporation that holds QSBS may not use IRC 1045 regardless of whether the QSBS itself would otherwise qualify. For pass-through entities, the election is made by the non-corporate beneficial owner -- not by the entity -- as described in the Partnership and Pass-Through Complications section below.
The taxpayer must have held the original QSBS for more than six months at the time of the sale. This six-month threshold is the entry point for IRC 1045 and distinguishes it from the five-year (more than 60-month) holding requirement for the permanent IRC 1202 exclusion. The holding period clock starts on the acquisition date of the stock and runs continuously; unlike short-sale rules or certain option exercises, there is no special tolling provision in IRC 1045 itself. Confirm the holding period with acquisition documentation before advising any client on rollover eligibility.
The taxpayer must acquire replacement QSBS within 60 calendar days of the sale date. "Acquire" means the taxpayer must both contract to purchase and actually receive the replacement stock within that period -- a signed term sheet or a subscription agreement alone, without closing and issuance, does not satisfy the requirement. In practice, early-stage company financing rounds can take weeks to close, which means a taxpayer relying on a specific round to support a rollover must confirm that the round will close and shares will be issued within the 60-day window before proceeding.
The amount of gain eligible for deferral under IRC 1045 is the lesser of: (1) the recognized gain on the sale of the original QSBS, or (2) the fair market value (FMV) of the replacement QSBS acquired within the 60-day window. If the taxpayer reinvests an amount less than the full sales proceeds, only the gain allocable to the reinvested portion is deferred; the remainder is recognized currently. A taxpayer who sells $3 million of QSBS with a $500,000 basis (recognizing $2.5 million of gain) and acquires $2 million of replacement QSBS defers the gain only to the extent of the $2 million reinvestment -- the portion of the original gain attributable to the unreinvested $1 million is recognized in the year of sale.
The replacement QSBS takes a reduced basis equal to its cost (the amount paid for it) minus the deferred gain. This mechanism preserves the deferred gain inside the replacement stock: on a later sale of the replacement stock, the taxpayer's lower basis produces a larger recognized gain -- effectively the original deferred gain plus any appreciation on the replacement stock -- unless a subsequent IRC 1045 rollover or IRC 1202 exclusion applies. Practitioners must maintain detailed basis schedules for each rollover transaction; in a chain of rollovers, the cumulative deferred gain compounds across positions.
IRC 1045 does not have a dedicated IRS form. The election is made by attaching a written statement to the taxpayer's timely filed return (including extensions) for the taxable year of the sale. The statement should identify: the QSBS sold (issuer, acquisition date, basis, sale date, sale price, and recognized gain); the replacement QSBS acquired (issuer, acquisition date, purchase price); the amount of gain deferred; and the basis of the replacement stock. "Timely filed" means by the return due date including any properly filed extension; an election made on an amended return filed after the 60-day window has closed is not available.
The replacement stock must be stock in a corporation other than the corporation whose QSBS was sold. A taxpayer cannot use IRC 1045 to roll gain from a sale of Stock A in Company X back into additional shares of Company X. The different-corporation requirement is absolute: there is no exception for affiliated corporations, corporate reorganizations, or corporate-level reincorporations. Advisors should confirm issuer identity before characterizing any reinvestment as a valid replacement under IRC 1045.
The replacement corporation must independently satisfy the gross asset test under IRC 1202(d) at the time the replacement stock is issued. For stock issued before July 4, 2025, the corporation's aggregate gross assets (including the proceeds received from the issuance) must not have exceeded $50 million. For stock issued on or after July 4, 2025 under OBBBA, the threshold rises to approximately $75 million (verify at IRS.gov). This is an independent test applied to the replacement corporation at issuance -- the fact that the original QSBS met the gross asset test does not carry over to the replacement stock.
The replacement corporation must meet the IRC 1202 active business requirements under IRC 1202(e) during substantially all of the taxpayer's holding period for the replacement stock. The active business test requires at least 80 percent (by value) of corporate assets to be used in a qualified trade or business. The excluded businesses -- health services, law, engineering, architecture, accounting, financial services, consulting, athletics, performing arts, and others -- apply to the replacement corporation exactly as they apply to the original QSBS issuer. Practitioners should obtain and retain documentation of the replacement corporation's business activities at acquisition and periodically during the holding period.
"Original issuance" means the taxpayer must acquire the stock directly from the issuing corporation (or, in limited circumstances, through a firm commitment underwriting where shares are issued to the underwriter and immediately sold to the public in an original issuance). Stock acquired from a selling founder, an early investor, or a secondary market fund does not qualify. Practitioners relying on participation in a new financing round to support the 60-day replacement window should confirm the round structure constitutes an original issuance rather than a secondary component.
The most significant IRC 1045 planning complexity arising from the One Big Beautiful Act of 2025 is not any direct amendment to IRC 1045 itself, but the dual-regime environment the OBBBA created by restructuring IRC 1202's parameters effective for QSBS issued on or after July 4, 2025. A taxpayer who sells pre-July 4 QSBS and rolls into post-July 4 replacement QSBS is simultaneously subject to pre-OBBBA rules (governing the original deferred gain) and post-OBBBA rules (governing the replacement stock's own future exclusion potential). These two rule sets do not blend automatically -- they require parallel tracking.
Under pre-OBBBA rules, a qualifying corporation's gross assets at the time of QSBS issuance could not exceed $50 million (including proceeds of the issuance). The IRC 1202 gain exclusion was capped at the greater of $10 million or 10 times the taxpayer's adjusted basis per taxpayer per issuer. The exclusion percentage was 100 percent for stock acquired on or after September 28, 2010, provided the five-year holding requirement was met. The pre-OBBBA exclusion applied to the recognized gain at the time of IRC 1202 election -- including any gain that had been deferred through prior IRC 1045 rollovers and was ultimately recognized on a qualifying sale. Verify all pre-OBBBA thresholds at IRS.gov.
For QSBS issued on or after July 4, 2025, the OBBBA raised the gross asset cap to approximately $75 million at issuance and raised the per-taxpayer per-issuer IRC 1202 exclusion ceiling to approximately $15 million (or 10 times adjusted basis, whichever is greater -- verify at IRS.gov). The OBBBA also introduced a phased exclusion schedule: approximately 50 percent exclusion if the stock is held for at least three years but fewer than four; approximately 75 percent if held for at least four years but fewer than five; and 100 percent if held for five or more years. Verify the exact thresholds and phase-in percentages at IRS.gov and with independent counsel, as implementation guidance may be pending.
Consider a taxpayer who acquired QSBS in 2023 in a qualifying corporation with $40 million of gross assets at issuance (old regime). In August 2025 the taxpayer sells that stock and realizes gain. In October 2025 the taxpayer acquires replacement QSBS in a new corporation that issued stock with $60 million of gross assets at issuance (new regime, post-July 4). The IRC 1045 rollover defers the gain from the 2023 stock into the basis of the 2025 replacement stock.
Now the taxpayer holds a single replacement position that carries two distinct layers: (1) the deferred gain from the original 2023 QSBS, which retains its pre-OBBBA character including the $10 million exclusion ceiling when ultimately recognized; and (2) the replacement stock's own intrinsic gain (post-acquisition appreciation), which will be governed by the post-OBBBA $15 million ceiling and the phased exclusion schedule when that gain is eventually recognized under IRC 1202. The IRS had not issued transition guidance on how these two layers are separated and computed at the time of this writing (July 2026). Conservative practice treats them as separately tracked and separately capped until guidance clarifies.
The replacement stock acquired in an IRC 1045 rollover begins a new six-month holding period for purposes of any future IRC 1045 rollover election (i.e., the replacement stock must itself be held more than six months before the taxpayer can roll it again under IRC 1045). However, for purposes of the five-year IRC 1202 exclusion clock, the original holding period tacks to the replacement stock. This means a taxpayer who held QSBS for three years and rolls into replacement QSBS is credited with three years of holding on the replacement stock for IRC 1202 purposes, and needs only approximately two more years of holding on the replacement stock to reach the five-year IRC 1202 threshold. Confirm current tacking rules and any applicable Treasury regulations at IRS.gov; in the dual-regime context, confirm how tacking interacts with the OBBBA phased-exclusion schedule for post-July 4 replacement stock.
An investor holds QSBS acquired in 2023 in a corporation that met the old $50 million gross asset cap. The investor sells in August 2025 and closes on replacement QSBS in October 2025 from a corporation that issued stock with $65 million of gross assets (qualifying under the new $75 million cap). The 60-day window is satisfied. The deferred gain from the 2023 stock is governed by the pre-OBBBA $10 million exclusion ceiling when the taxpayer eventually seeks exclusion. The replacement stock's own future appreciation qualifies for the post-OBBBA $15 million ceiling. The taxpayer's basis schedules must separately identify: (a) original 2023 QSBS basis and acquisition date; (b) gain deferred in the August 2025 sale; (c) replacement stock cost and October 2025 acquisition date; (d) replacement stock's reduced basis (cost minus deferred gain); and (e) the tacked holding period for IRC 1202 purposes (starting from the 2023 original acquisition).
| Situation | Preferred Tool | Rationale |
|---|---|---|
| QSBS held more than 6 months but fewer than 5 years; taxpayer needs liquidity | IRC 1045 rollover | IRC 1202 exclusion not yet available; IRC 1045 defers gain while replacement stock seasons |
| QSBS held more than 5 years; recognized gain within the per-issuer exclusion ceiling | IRC 1202 exclusion | No rollover needed; permanent exclusion eliminates the gain without reinvestment requirement |
| QSBS held more than 5 years; recognized gain exceeds the IRC 1202 exclusion ceiling | IRC 1202 exclusion (to ceiling) + IRC 1045 (excess gain) | Exclude gain up to the ceiling under IRC 1202; roll excess gain into replacement QSBS under IRC 1045 |
| Post-OBBBA QSBS held 3-4 years; partial exclusion available under phased schedule | IRC 1202 (partial) or IRC 1045 depending on ceiling | Evaluate whether a partial exclusion at 50%/75% now vs. full deferral and 100% later produces a better net result given the taxpayer's rate environment |
| QSBS held more than 6 months; want to reset into a better-positioned replacement QSBS | IRC 1045 rollover | IRC 1045 allows portfolio repositioning without current tax cost; holding period tacks for IRC 1202 |
The most tax-efficient outcome for a QSBS investor is often to roll gain under IRC 1045 in year N and then exclude the cumulative gain (original deferred gain plus replacement stock appreciation) under IRC 1202 when the replacement stock completes the required holding period. Because the original holding period tacks to the replacement stock for IRC 1202 purposes, the combined holding period can often reach the IRC 1202 five-year threshold sooner than starting a fresh holding period from the replacement stock's acquisition date. This stacking approach requires precise basis tracking -- the deferred gain from the IRC 1045 rollover is part of the gain that will eventually be tested against the IRC 1202 exclusion ceiling. In a dual-regime scenario, the deferred gain is tested against the pre-OBBBA ceiling; the replacement stock's own appreciation is tested against the post-OBBBA ceiling. See also the discussion of IRC 1221/1222/1223 capital gain character for the interaction between holding periods and capital gain rates when any portion of a QSBS gain falls outside both IRC 1045 and IRC 1202 coverage.
When a partnership sells QSBS, the gain flows to each partner according to the partnership agreement's allocation provisions. A qualifying partner who wants to defer their allocable share of the gain must, within 60 days of the partnership's sale date, acquire their own replacement QSBS (not a replacement held at the partnership level). The replacement stock can be acquired by the partner personally or through another pass-through vehicle, but the acquisition must close within 60 days of the date the partnership sold the original QSBS.
In tiered partnership structures -- a fund-of-funds holding an interest in a venture fund that holds QSBS -- the documentation burden compounds at each tier. Each tier must separately document: (a) when the QSBS was sold and at what price; (b) each tier's allocable share of the gain; (c) each qualifying ultimate taxpayer's replacement acquisition; and (d) the basis adjustment flowing through each tier. Practitioners advising tiered fund structures should build notification and election tracking protocols into the fund's administrative procedures, not treat them as a post-sale reconstruction task.
S corporations present an additional layer of complexity. An S corporation can hold QSBS, but the IRC 1045 election for the S corporation's QSBS gain is made at the shareholder level for qualifying non-corporate shareholders. A qualifying shareholder's allocable share of the S corporation's QSBS gain may be deferred under IRC 1045 if that shareholder acquires replacement QSBS independently within 60 days of the S corporation's sale. Verify current S corporation pass-through election mechanics and confirm that the shareholder's basis in S corporation stock is adjusted appropriately. Consult the discussion of IRC 1244 small business stock ordinary loss provisions for related planning considerations applicable to small business stock held in corporate form.
| Rule / Element | Pre-OBBBA (before July 4, 2025) | Post-OBBBA (on/after July 4, 2025) | Notes |
|---|---|---|---|
| Gross asset cap at issuance (IRC 1202(d)) | $50 million | Approximately $75 million (verify at IRS.gov) | Applies to original QSBS issuer and to replacement QSBS issuer separately |
| IRC 1202 exclusion ceiling per taxpayer per issuer | Greater of $10 million or 10x adjusted basis | Approximately greater of $15 million or 10x adjusted basis (verify at IRS.gov) | Ceiling resets for each new issuer; deferred gain retains original ceiling in dual-regime rollover |
| IRC 1202 exclusion percentage | 100% (for stock acquired on/after September 28, 2010, held more than 5 years) | Approximately 50% at 3 years, 75% at 4 years, 100% at 5+ years (verify at IRS.gov) | Post-OBBBA phased schedule applies to post-July 4, 2025 issuances only |
| IRC 1202 holding period (5-year clock) | More than 5 years required for full exclusion | More than 3 years for partial; more than 5 years for full exclusion (verify at IRS.gov) | Tacking from IRC 1045 rollover applies to IRC 1202 clock under both regimes |
| IRC 1045 minimum holding period (original QSBS) | More than 6 months | More than 6 months (unchanged) | Applies to original QSBS at time of sale; replacement stock begins new 6-month clock for future IRC 1045 elections |
| IRC 1045 replacement window | 60 days from sale date | 60 days from sale date (unchanged) | Measured from sale date; no extension mechanism; no cure for missed window |
| Replacement stock original issuance requirement | Must be acquired at original issuance | Must be acquired at original issuance (unchanged) | Secondary market purchases disqualify the replacement stock under both regimes |
| Different-corporation rule | Replacement must be in a different corporation from the one sold | Same rule (unchanged) | No affiliated-group exception; no reorganization exception |
| Eligible electing taxpayer | Non-corporate taxpayers (individuals, partnerships at partner level, trusts, estates) | Same (unchanged) | C corporations cannot elect IRC 1045 under either regime |
| Basis of replacement QSBS | Cost minus deferred gain | Cost minus deferred gain (unchanged) | In dual-regime rollover, the deferred-gain layer and replacement appreciation are separately tracked |
| Dual-regime tracking requirement | Not applicable (single regime pre-July 4, 2025) | Required: separate schedules for deferred gain (pre-OBBBA ceiling) and replacement stock gain (post-OBBBA ceiling) | IRS transition guidance had not been issued as of July 2026; verify at IRS.gov |
| Active business requirement (IRC 1202(e)) | At least 80% of assets in qualified trade or business; excluded fields include health, law, financial services, consulting, and others | Same core test (verify whether OBBBA amended any excluded categories at IRS.gov) | Applies throughout substantially all of the taxpayer's holding period for both original and replacement QSBS |
What is IRC 1045 and how does the QSBS rollover work?
IRC 1045 allows a taxpayer (other than a corporation) who sells qualified small business stock (QSBS) held for more than six months to defer the recognized gain by rolling the sale proceeds into replacement QSBS within 60 days of the sale. The gain is not excluded permanently under IRC 1045 -- it is deferred by reducing the basis of the replacement stock by the amount of gain rolled over. The deferral continues until the replacement stock itself is sold, at which point the taxpayer may elect another IRC 1045 rollover or, if the replacement stock has been held long enough, pursue a permanent exclusion under IRC 1202. Verify all current requirements and thresholds at IRS.gov and consult independent counsel, as the One Big Beautiful Act (OBBBA) enacted provisions effective July 4, 2025 that interact with IRC 1045 in ways for which IRS transition guidance may still be pending.
What is the 60-day replacement window under IRC 1045?
Under IRC 1045, the taxpayer must acquire replacement QSBS within 60 days of the date of sale of the original QSBS. The 60-day window is measured from the sale date, not from the tax return due date or the date the return is filed. Missing the 60-day window eliminates the deferral election entirely: the gain from the original sale is recognized in full in the year of sale with no rollover available. There is no statutory extension or cure period for a missed window, and the IRS has no general authority to grant a waiver for missed IRC 1045 elections after the window closes. Practitioners should calendar the window immediately upon learning of a pending QSBS sale.
How is IRC 1045 different from IRC 1202?
IRC 1045 and IRC 1202 address different stages of a QSBS investment lifecycle and produce different tax results. IRC 1045 is a deferral election: it postpones recognized gain by requiring the taxpayer to reinvest in replacement QSBS within 60 days, with the deferred gain reducing the replacement stock's basis. IRC 1202 is a permanent exclusion: it removes a portion (or all) of the gain from federal income tax permanently, requiring the stock to be held for more than five years (subject to the post-OBBBA phased schedule for stock issued on or after July 4, 2025). IRC 1045 is the correct tool when the taxpayer has held QSBS for more than six months but fewer than five years -- or when the IRC 1202 exclusion ceiling has been reached -- and wants to defer gain while a new QSBS position seasons toward IRC 1202 eligibility. The two provisions are routinely stacked: a taxpayer rolls gain under IRC 1045, allows the replacement stock to mature, and then excludes the gain (including the deferred portion) under IRC 1202 when the replacement stock meets the five-year holding period requirement.
What qualifies as replacement QSBS under IRC 1045?
Replacement QSBS must satisfy several conditions to support an IRC 1045 rollover. The replacement stock must be stock in a different corporation from the one whose QSBS was sold -- rolling gain into additional shares of the same issuer does not qualify. The replacement corporation must satisfy the gross asset test under IRC 1202(d) at the time the replacement stock is issued: the corporation's aggregate gross assets (including the proceeds of the issuance) must not exceed the applicable threshold ($50 million for stock issued before July 4, 2025; $75 million for stock issued on or after July 4, 2025 -- verify at IRS.gov). The replacement corporation must also meet the active business requirement under IRC 1202(e) during substantially all of the taxpayer's holding period. Critically, the replacement stock must be acquired at original issuance directly from the issuing corporation -- secondary market purchases of QSBS do not satisfy the replacement stock requirement. Verify all current requirements at IRS.gov.
How did the OBBBA affect IRC 1045 rollovers?
The One Big Beautiful Act (OBBBA), with provisions effective for QSBS issued on or after July 4, 2025, restructured several parameters relevant to IRC 1045 rollovers. The OBBBA raised the gross asset cap for qualifying corporations (from approximately $50 million to approximately $75 million at issuance), raised the IRC 1202 exclusion ceiling (from approximately $10 million to approximately $15 million per taxpayer per issuer), and introduced a phased exclusion schedule for the IRC 1202 exclusion on post-OBBBA stock (approximately 50 percent at three years, 75 percent at four years, 100 percent at five years -- verify at IRS.gov). The critical IRC 1045 complication is the dual-regime problem: a taxpayer who sells pre-July 4, 2025 QSBS (old regime) and rolls into replacement QSBS issued on or after July 4, 2025 (new regime) holds a single deferred-gain position governed by two overlapping rule sets. IRS has not yet issued transition guidance on dual-regime rollovers as of July 2026 -- verify current guidance at IRS.gov before advising clients.
Can a partnership use IRC 1045?
A partnership may sell QSBS and be eligible for IRC 1045 treatment, but the election operates at the partner level, not the partnership level. Under the applicable rules, each partner who is a qualifying taxpayer (i.e., a non-corporate taxpayer who held the partnership interest while the partnership held the QSBS) must make the IRC 1045 election separately. A single partnership-level election does not bind or protect all partners. In a tiered partnership structure, the documentation burden multiplies: each tier must track the original QSBS acquisition date, the partner's allocable share of QSBS gain, the partner's separate acquisition of replacement QSBS within the 60-day window, and the basis adjustment at each level. Partners in a partnership that sells QSBS should be notified promptly of the sale date so they can execute their individual replacement acquisitions within the 60-day window. Verify current pass-through election mechanics and any related Treasury guidance at IRS.gov.
What is the basis of replacement QSBS acquired in an IRC 1045 rollover?
The replacement QSBS acquired in an IRC 1045 rollover takes a reduced cost basis equal to its actual cost (the amount paid) minus the amount of gain deferred. For example, if a taxpayer pays $2 million for replacement QSBS and defers $800,000 of gain from the original sale, the replacement stock's basis is $1.2 million. This reduced basis preserves the deferred gain inside the replacement stock: when that stock is eventually sold, the lower basis will produce a correspondingly larger recognized gain (unless another IRC 1045 rollover is elected or the gain is permanently excluded under IRC 1202). Practitioners must maintain a separate basis tracking schedule for each rollover to support IRC 1202 exclusion computations and to document the deferred-gain component upon eventual recognition. In a dual-regime rollover (pre-OBBBA original stock rolled into post-OBBBA replacement stock), separate tracking for the deferred-gain component and the replacement stock's own future gain is required.
How long must the original QSBS be held to use the IRC 1045 rollover?
To elect an IRC 1045 rollover, the taxpayer must have held the original QSBS for more than six months at the time of sale. This six-month minimum holding period applies to the IRC 1045 rollover election; it is a lower threshold than the more-than-five-year holding requirement for the IRC 1202 gain exclusion. The six-month clock runs from the taxpayer's acquisition date for the stock (or, in a partnership context, the date the partnership acquired the QSBS, subject to applicable look-through rules -- verify with counsel). There is no maximum holding period for IRC 1045: a taxpayer who held QSBS for six years could still elect IRC 1045, though a taxpayer in that position should evaluate whether IRC 1202 provides a more favorable permanent exclusion rather than a deferral. The replacement stock acquired in the rollover begins a new six-month clock for purposes of any future IRC 1045 election, but tacks the original holding period for purposes of the five-year IRC 1202 exclusion clock (verify current tacking rules and applicable Treasury guidance at IRS.gov).
IRC 1045 QSBS rollovers require precision on timing, documentation, and -- since the OBBBA -- dual-regime tracking that most practitioners are encountering for the first time. Americas Tax advises CPAs, startup tax counsel, and tax directors on rollover elections, replacement QSBS qualification analysis, 60-day window management, and the basis tracking schedules required to support a successful IRC 1202 exclusion down the line.
Whether you are advising an investor who sold QSBS and has a 60-day window running, a venture fund managing partner-level election logistics, or a tax director building dual-regime documentation protocols for a post-OBBBA portfolio, our team can provide the technical depth and practical workflow support the engagement requires.
Contact Americas Tax for IRC 1045 rollover planning, QSBS holding period analysis, or dual-regime compliance review.