If you have recently sold your QSBS with a realized gain before the five year holding period has concluded you may want to elect the Section 1045 rollover. After the stock is sold you have 60 days to reinvest your QSBS sale proceeds into one or more newly issued QSB stocks. Before or on the date of filing your tax return you will need to elect the Section 1045 rollover and provide comprehensive documentation that displays (i) that the original QSBS met all of the Section 1202 requirements, (ii) the Section 1045 requirements have been met, and (iii) the new QSBS meets all of the Section 1202 requirements.
Steps to take on your tax return:
1. Reporting the entire gain from the sale of QSB stock on Schedule D, Capital Gains, and Losses, of the return in accordance with the instructions for Schedule D;
2. Writing “section 1045 rollover” directly below the line on which the gain is reported; and
3. Entering the amount of the gain deferred under Section 1045 on the same line as (2) above, as a loss, in accordance with the instructions for Schedule D.
This article does not constitute legal or tax advice. Please consult with your legal or tax advisor with respect to your particular circumstance.