Section 1045 of the tax code is designed to encourage small-business investments. Under this
provision, individual investors may elect to roll over any gain from the sale of small-business stock
held for more than six months. No tax will be due on such gains.
The company must be a domestic C corporation in an active business with aggregate gross receipts of
$50 million or less, up to the time its stock was issued. To get the deferral, the sale proceeds must
be used to purchase other qualified small-business stock within 60 days.
Suppose, for example, you invested $50,000 in a small company in August 2003. In January 2004, you
sold that stock for $85,000, realizing a $35,000 gain. Then, in February 2004, you purchased stock in
another small company for $75,000.
Under Section 1045, you
