PE Rollover Equity Calculator: What Will Your Second Bite Be Worth?

When private equity asks you to roll 15–30% of deal proceeds into Newco, they're offering a second bite at a (hopefully) higher valuation — but deferring your capital gains tax doesn't eliminate it. This calculator models your first-bite after-tax cash, your carryover basis, and the second-bite value across exit MOIC scenarios, including a break-even analysis that accounts for the time value of money.

How the tax works: Under IRC §351 (C-corp rollover) or §721 (LLC/partnership rollover), contributing your equity to Newco in exchange for Newco equity is tax-deferred — you carry your original basis into the new equity and owe no capital gains at close. The deferred gain is recognized at the second exit when PE sells the portfolio company.

Business enterprise value ($) The total agreed purchase price before working capital adjustments.

Your cost basis in the business ($) What you originally invested or paid. Most founders use a very low number (near $0). Buyers use their acquisition price. This is your total tax basis — the calculator allocates it proportionally to the cash and rollover portions.

Rollover percentage (%) The share of your equity PE is asking you to roll into Newco. Typical PE ask: 15–30%. Rolling more aligns incentives but increases your concentration risk and defers more cash.

Expected PE hold period (years) PE funds typically hold portfolio companies 4–7 years. Affects the NPV break-even: a longer hold raises the MOIC you need to beat the alternative of taking all cash today.

Hurdle rate for NPV break-even (%) The return you expect on the after-tax cash if you take it all at close instead of rolling. A diversified portfolio: 7–8%. Liquid alternatives or bonds: 4–5%. PE co-invest carries real illiquidity and concentration risk, so this hurdle is how you compare like to like.

State capital gains tax rate (%) CA: 13.3%, NY: 9.65–10.9%, NJ: 10.75%, WA/TX/FL/NV: 0%. Applied equally to both bites (assumes same residency at both exits).

How rollover equity works: the two-bite tax math

First bite: the taxable portion at close

When you close the deal, you receive cash equal to your non-rolled equity. If you've held the business for over one year, this is long-term capital gain. Your gain equals cash proceeds minus the proportional share of your cost basis allocated to the cash portion. On the first bite, you owe federal capital gains at 23.8% (20% federal LTCG + 3.8% NIIT) for high-income sellers — plus any state tax.

Example: $15M deal, $200K basis, you roll 20%. Cash at close: $12M. Basis allocated to cash: $160K. Gain: $11.84M. Federal tax: $11.84M × 23.8% = $2.82M. After-tax cash at close: $9.18M.

The rollover: tax-deferred, not tax-free

Under IRC §351 (for C-corp contributions) or §721 (for partnership/LLC), contributing your equity to Newco in exchange for Newco equity is not a taxable event — provided you meet the control requirements (§351: 80% of Newco stock received in exchange; §721: partnership contributions generally qualify without a control test). You carry your original basis into the new equity. In the example above, your Newco basis is $40K (the $200K × 20% proportional share).

The deferred gain doesn't disappear — it's embedded in your Newco stock. When PE exits and you sell your Newco equity, that $3.96M of deferred gain ($4M rollover value minus $40K basis) is recognized, plus any additional appreciation from the second investment period.

Second bite: capital gains at PE exit

When PE sells the portfolio company (typically 4–7 years after your first sale), you sell your Newco equity. If held over one year, this is long-term capital gain again. Your gain is the Newco exit proceeds minus your $40K carryover basis. At 3× MOIC on the $3M rollover, the Newco equity is worth $9M. Your gain: $8.96M. Tax: $2.13M. After-tax second bite: $6.87M.

Total after-tax from both bites at 3×: $9.18M + $6.87M = $16.05M, versus $11.48M from taking all $15M in cash at close. The rollover at 3× adds $4.57M in after-tax proceeds.

The real break-even: time value matters

On a purely nominal (undiscounted) basis, the rollover breaks even at exactly 1.0× MOIC — because you deferred the tax on the rolled portion at the same rate you'd have paid at close. Any MOIC above 1.0× is incremental value.

But capital has a cost. The $3M you "gave up" by rolling instead of taking cash could have been invested at close. At an 8% annual hurdle over 5 years, that opportunity cost compounds to roughly 1.47× on your after-tax cash. The NPV break-even MOIC — the minimum for rolling to outperform taking all cash and investing it — is typically 1.3×–1.6× depending on hold period and discount rate. The calculator above computes this precisely for your inputs.

PE deals at successful exits historically average 2.5×–3× MOIC for buyouts. If you believe your PE sponsor can achieve that, the rollover math generally favors rolling. The risk: not all PE deals exit above 1.5×, and you bear the illiquidity and concentration risk during the hold period with no guarantee of return.

What to negotiate beyond the percentage

The rollover percentage is only the starting point. Key terms that protect your position:

Tag-along rights: Require PE to include your Newco equity in any future exit at the same price and terms. Without this, PE could sell the company without buying you out, leaving your equity trapped.
Drag-along provisions: Understand when PE can force you to sell (usually acceptable; PE needs clean exit rights).
Liquidation preference: If PE contributes additional equity post-close, make sure it doesn't create a preference that pays them out ahead of your rollover equity at exit.
Information rights: Quarterly financials, annual audited statements, and the right to attend board meetings as an observer.
Registration rights: If Newco goes public, this gives you the right to register your shares for sale.
Put right: Rarely granted, but worth asking — the right to require PE to purchase your equity at a formula price after a set period if no exit occurs.

See the full PE rollover equity guide for deal-by-deal negotiation tactics.

IRC §351, §721 — tax-deferred treatment of contributions to corporations and partnerships
IRC §1(h) — long-term capital gains rate schedule; 20% maximum federal rate (2026)
IRC §1411 — Net Investment Income Tax, 3.8% surtax; $200K/$250K thresholds not inflation-adjusted
IRS Rev. Proc. 2025-32 — 2026 inflation-adjusted tax parameters; LTCG 20% threshold $533,400 single / $600,050 MFJ

Tax values verified as of June 2026. NIIT threshold per IRS Topic 559; unchanged since enactment in 2013.