Section 1045 is the escape hatch for QSBS exits that come too early. Say your company is acquired three years after you invested — well short of the five-year hold that Section 1202 requires for the gain exclusion. Instead of paying tax on the gain, you can roll the proceeds into newly issued QSBS from another qualifying C corporation within 60 days of the sale. The gain is deferred, and the replacement stock inherits your original holding period: it starts life already three years old, needing only two more to reach the full five-year exclusion.
The mechanics have sharp edges. You must have held the original stock more than six months, and the 60-day reinvestment window is brutally short with no extensions — which in practice means lining up the replacement investment and your tax advisor before the sale closes, not after. To defer the entire gain you must reinvest the full proceeds; reinvest less and the shortfall is taxed now. The deferred gain isn't erased — it reduces your basis in the replacement stock, so it resurfaces when you eventually sell — unless the combined holding period crosses five years and Section 1202 excludes it entirely. The election is made on your tax return for the year of the sale. This is general information, not tax advice.