What is Incentive stock options?
In short
Incentive stock options create no regular tax when granted or exercised. If the shares are held more than 2 years from grant and 1 year from exercise, the whole gain on sale is long-term capital gain.
Key takeaways
- The spread at exercise is an adjustment for the alternative minimum tax.
- Selling earlier is a disqualifying disposition: the spread at exercise becomes ordinary compensation income.
- The employer gets a deduction only on a disqualifying disposition.
Where it's tested
TCP: Individual Tax Planning Strategies — study notes, a five-minute revision sheet and practice questions.
Practise: 3 questions
Question 1 of 3 · 0 answered
A taxpayer sells stock at a $10,000 loss on December 10 and repurchases the same stock on December 28 of the same year. What is the tax result?