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The 1031 exchange of startup stock — defer now, exclude permanently later.
An exit offer arrived before your Section 1202 exclusion tier. Section 1045 is the bridge: sell QSBS you've held more than six months, reinvest the proceeds into new qualified small business stock within 60 days, and the gain defers — while your holding period carries over to the replacement stock. Held 3 years? The replacement inherits those 3 years and reaches the 100% exclusion in 2 more, not 5. The catch: reinvest the FULL proceeds or the unreinvested slice is taxed now, and the deferred gain reduces your new basis — this is postponement that converts to permanent exclusion only when the replacement hits a §1202 tier. California residents: the deferral is federal-only.
Founders and angels use it when the exit arrives a year early: reinvest the proceeds in new QSBS within 60 days, the gain defers, and the three years already banked tack onto the replacement — turning a forced sale into a bridge to the full exclusion instead of a tax bill.
Five gates, all absolute: (1) you're not a corporation; (2) the sold stock was QSBS held more than 6 months; (3) replacement QSBS purchased within 60 days of the sale date — no extensions, no identification period like a 1031; (4) the replacement independently qualifies (original issuance, C-corp, under the gross-assets cap); (5) election on a timely-filed return including extensions (Rev. Proc. 98-48, Form 8949 code R), revocable only with IRS consent. Miss any gate and the gain is simply recognized.
Not proportionally. Gain is recognized to the extent sale PROCEEDS exceed what you reinvest — sell for $8M, reinvest $7.5M, and $500,000 is taxed now (up to 23.8% federal + state) while $7M of a $7.5M gain defers. The deferred gain then reduces the replacement stock's basis dollar-for-dollar, in acquisition order if you buy multiple lots. To defer everything, reinvest everything.
No — tacking carries the acquisition DATE, not just the years. Roll pre-OBBBA stock (issued on or before July 4, 2025) into brand-new QSBS and you keep the legacy regime: $10M cap and the all-or-nothing 5-year cliff. Rollovers can chain indefinitely across multiple replacements, and California conforms to neither §1045 nor §1202, so CA residents owe full state tax at sale even with a perfect federal deferral.