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How does a Section 1042 rollover work when an owner sells to an ESOP? - The Grid Answers

How does a Section 1042 rollover work when an owner sells to an ESOP?

Published on 2026-11-03 | Last edited on 2026-11-03

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Short Answer

A Section 1042 rollover defers capital gains tax on C corporation shares an owner sells to an employee stock ownership plan (ESOP). The ESOP must own at least 30% of the company after the sale. The owner then reinvests in US operating companies’ stocks or bonds, and owes the tax only when those are sold.

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What advice do business owners who sold to third parties have to offer me?What are the different types of employee ownership?Are the 3 business succession options (i.e., employee ownership, strategic buyer, or financial buyer) mutually exclusive?How does an Employee Ownership Trust compare to an ESOP or a worker cooperative?Are there tax benefits to an Employee Ownership Trust, and what does the owner owe on the sale?What are the pros and cons of selling a business to an ESOP?What is an employee stock ownership plan (ESOP)?What regulator requires employee ownership transactions to be executed at fair market value?Are worker cooperatives only for small companies?

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