Hi
I have a question about taxation of stocks acquired through incentive stock plan
based stock options.
I acquired some stock option on Dec 15, 2011 as I was leaving my past job. At
that time the company was still pre-IPO.
The company went public around April 15, 2012.
My 6 month lock in ended 6 months after the IPO i.e. Oct 15 2012
My question is:
When is the latest that I can sell the stock to be eligible for long term
capital gain tax rate? Or more specifically, if I sell it after Dec 16, 2012
would I quality for long term capital gain tax rate?
Thanks and looking forward to your advice.
plan based stock options.
that time the company was still pre-IPO.
capital gain tax rate? Or more specifically, if I sell it after Dec 16, 2012
would I quality for long term capital gain tax rate?
Assuming you are asking about Incentive Stock Options (ISOs):
You failed to provide us the date of grant. A qualifying disposition
(QD) has to occur more than two years after the date of grant.
Therefore, if Dec. 16, 2012 is more than two years after the grant date,
you would have a QD. You will have a long-term capital gain equal to the
difference between the exercise price and sales price.
If you fail the date of grant test, you have a disqualifying
disposition. You would have compensation (line 7 of Form 1040) equal to
the difference between your exercise price and the fair market value
(FMV) on the date of exercise. You would have a long-term capital gain
or loss calculated by subtracting the sum of your exercise price +
compensation from the sales price.
The above are the rules for regular tax. Alternative Minimum Tax (AMT)
has a different set of rules. For ISOs, the day you exercised the option
and bought the shares is not ignored for AMT. As you did not sell the
stock in the same year you bought it, the difference between the
exercise price and FMV on the exercise date is AMT income. For you, that
would have been 2011. See the instructions for Line 14 of the 2011 Form
6251. Whether you are subject to AMT in 2011 will depend upon other data
not provided.
[...]
Further, if you paid AMT on the ISO exercise, it is a deferral item,
which means essentially you pre-paid some tax (AMT basis adjustment),
and you will normally get it back as a credit at some later time.
--
Mark Bole, EA
Enrolled Agents - America's Tax Experts
Alan:
Thanks for your advice. Few clarifications:
1. These are ISOs.
2. In Dec 2012, more than two years would have passed since the grant dates
3. In 2011 tax return, I did pay AMT on the ISO
Still wondering when is the latest that I can sell the stock to be eligible for
long term capital gain tax rate? Or more specifically, if I sell it after Dec
16, 2012 would I quality for long term capital gain tax rate?
For reference:
I acquired some stock option on Dec 15, 2011 as I was leaving my past job. At
that time the company was still pre-IPO.
The company went public around April 15, 2012.
My 6 month lock in ended 6 months after the IPO i.e. Oct 15 2012
for long term capital gain tax rate? Or more specifically, if I sell it after
Dec 16, 2012 would I quality for long term capital gain tax rate?
that time the company was still pre-IPO.
The original reply has your answer. That said, I assume you meant to ask
when is the earliest (not the latest) you can sell the stock and have a
qualifiying disposition (not be eligible for long-term gain). A
qualifying disposition, by definition, is a long-term gain.
Sell the stock at least two years plus one day after the date of grant
of the option and one year plus one day after the date of purchase.
If you fail the date of grant test, you have a disqualifyimg
disposition. This means you will have to report compensation income. The
gain if any would still be long-term if you owned the stock for more
than one year. It would be short-term if you did not own the stock for
more than one year.
for long term capital gain tax rate?
I wonder why you keep asking the question backwards. As has been pointed out
before, what you're looking for is the earliest date, not the latest date. I'm
also wondering how it could be 2 years after the grant date in December 2012
when the grant date was in 2011.
Nonetheless, check out
formatting link
, the best online source I've found for
information on options. Keep in mind that you have two separate issues and
holding periods.
1. As with any stock, if you hold it more than 1 year from the date you
exercised the option and bought the stock, the gain/loss is long-term.
2. To avoid taxable compensation from the grant you must hold the stock until
the later of:
2 years after the grant date, or
2 years after the exercise.
Phil Marti
VITA/TCE Volunteer
Clarksburg, MD
Do you mean sell the stock the later of: (a) 2 years + 1 day from grant, 1
year + 1 day from date of purchase. Or: the sum of (a) and (b), meaning at
least 3 years from date of grant?
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