Can I offset ISO stock gains with short-term stock losses
john hil
disqualifying disposition and had a net gain of around 30K.
This was added as income to my w2 form. Is it possible to
use short-term stock losses to offset the gain of the ISO's.
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David Woods EA MST
> disqualifying disposition and had a net gain of around 30K.
> This was added as income to my w2 form. Is it possible to
> use short-term stock losses to offset the gain of the ISO's.
Capital losses in excess of capital gains can only be
deducted in the amount of $3000 per year. Unless you have
other gains, you can only deduct $3k of losses. The ISO
exercises are not capital gains.
David M. Woods, EA, MST, ChFC
(617) 723-2422
Boston, MA
www.rytercpa.com
dwo...@rytercpa.com
This advice does not constitute a client relationship.
If you are not a client, you are on your own.
Phil Marti
> I exercised and sold some ISO stock options in a
> disqualifying disposition and had a net gain of around 30K.
> This was added as income to my w2 form. Is it possible to
> use short-term stock losses to offset the gain of the ISO's.
Not directly. If your Schedule D shows a bottom line loss,
you can apply $3,000 of that to this year's return and carry
the balance forward.
Phil Marti
Topeka, KS
Rich Carreiro
> I exercised and sold some ISO stock options in a
> disqualifying disposition and had a net gain of around 30K.
> This was added as income to my w2 form. Is it possible to
^^^^^^^^^^^^^^^^^^^^
> use short-term stock losses to offset the gain of the ISO's.
No, you cannot (except for perhaps $3,000 worth). Capital
losses, whether short-term or long-term *cannot* generally
offset ordinary income (which wages are) except that if you
have a net capital loss for the year, you can take the first
$3,000 of the loss against your ordinary income and must
carry the rest of the loss over to next year. See the Sched
D instructions and the Capital Loss Carryover Worksheet.
--
Rich Carreiro rlc...@animato.arlington.ma.us
William P. Brown
> I exercised and sold some ISO stock options in a
> disqualifying disposition and had a net gain of around 30K.
> This was added as income to my w2 form. Is it possible to
> use short-term stock losses to offset the gain of the ISO's.
The portion of your gain equal to the difference between the
market price of the stock on the exercise date and the
option price is compensation (ordinary) income. Any
additional gain is short term capital gain. All cap gains
and losses are netted. If the result is a capital loss, up
to $3,000 can be deducted from ordinary income.
Regards,
Bill
~~~~
Associate Professor of Accounting
Longwood College
Department of Accounting, Economics & Finance
http://www.longwood.edu/staff/wpbrown/
Opinions expressed by me are mine, not my employer's.
Thomas E. Healy
> disqualifying disposition and had a net gain of around 30K.
> This was added as income to my w2 form. Is it possible to
> use short-term stock losses to offset the gain of the ISO's.
Since the disqualifying disposition results in wage income,
you can only deduct up to $3,000 of net capital losses on
this year's return. The rest gets carried over to next year.
Tom
--Solving your tax and business problems with
Professional Service...Personal Attention
Email: t...@tomhealycpa.com
Web: http://www.tomhealycpa.com
Greg Fein
> I exercised and sold some ISO stock options in a
> disqualifying disposition and had a net gain of around 30K.
> This was added as income to my w2 form. Is it possible to
> use short-term stock losses to offset the gain of the ISO's.
When shares acquired via the exercise of incentive stock
options (ISOs) are disposed (via sale or other means) within
1 year from the date of exercise this is a disqualifying
disposition. What would have been the AMT preference
adjustment related to the exercise due to the difference
between the strike price (exercise) and the FMV at the date
of exercise becomes ordinary income. Disqualified ISOs are
ultimately NQSOs at that point.
Most of my clients who have disqualifying disposals of ISO
shares enter into the disqualifying disposal immediately
upon the exercise of the options. We often do this as a
planned transaction to balance other AMT/Regular Tax issues.
This ends up leaving the taxpayer with ordinary income equal
to the FMV of the shares exercised, regular and AMT basis in
the shares at FMV and in most cases the proceeds from
disposal are at FMV. That being said there is usually no
capital gain or loss impact because exercise and disposal
happen simultaneously.
If the exercise and disposal happen at different dates but
are still within 365 days of one another this too would be a
disqualifying disposition. The taxpayer would then have to
look back to the date of exercise and determine the
appropriate amount of additional compensation income to
record (usually included in the employees W-2 as most stock
option plans monitor employee disposals of stock acquired
via option just for this purpose; let's not forget that the
disqualifying disposal means a tax deduction for the
employer). Any additional appreciation or depreciation in
the shares subsequent to the date of exercise would then
make up the capital gain/loss element to the taxpayer.
Long-story made short --- Yes, If you have a CAPITAL gain
from disqualified ISO shares then this would go into your
Sch D computations and would be available to offset capital
losses. However given the year's market conditions, I
suspect the GAIN you refer to is truly the additional
ORDINARY income component attributable to the
disqualification. That being said than, No, this is wage
income, should be reported to you on Form W-2 Box 1 federal
wages, and withheld for by your employer, and taxed by Uncle
Sam at your appropriate income tax rate.
And as always, it is never bad advice to consult a licensed
and trusted tax professional with matters such as this.
Best Regards,
Greg Fein
David Hardesty
sold the stock. This is usually referred to as a "cashless
exercise," where the option holder does not remit cash to
exercise the option, but instead receives the net proceeds
from the stock sale, after deducting both the exercise price
and any taxes withheld by the employer.
EXAMPLE: Jones holds ISOs to acquire 1,000 shares of XYZ
stock, with an option price of $10 per share. At a time when
XYZ stock is worth $25 per share, Jones elects to do a
cashless exercise. XYZ's broker credits his account with
1,000 shares, and immediately sells those shares for
$25,000. The broker deducts from this amount the $10,000
option exercise price, leaving Jones with a credit of
$15,000. In this example, Jones' tax is $6,000. After
withholding the tax, the brokerage firm remits to Jones cash
of $9,000.
If this is the case, the excess of the value of the stock on
exercise, over the exercise price, is ordinary income, not
capital gain. Ordinary income cannot be offset by capital
losses (except for an annual allowance of $3,000).
If, on the other hand, you sold the stock sometime after
exercise, then a portion of the gain could be capital gain,
which can be offset. Capital gain results if the sales price
of the stock exceeds its value on the date of exercise.
**********
David Hardesty
Author of: "Taxation of Employer Stock and Options"
David Hardesty
receiving it on exercise of the ISO. This is usually
referred to as a "cashless exercise," since no upfront cash
is required for this kind of exercise.
EXAMPLE: Jones holds options to acquire 1,000 shares of XYZ
stock, with an option price of $10 per share. At a time when
XYZ stock is worth $25 per share, Jones elects to do a
cashless exercise. XYZ's broker credits his account with
1,000 shares, and immediately sells those shares for
$25,000. The broker deducts from this amount the $10,000
option exercise price, leaving Jones with a credit of
$15,000. In this example, Jones' tax is $6,000. After
withholding the tax, the brokerage firm remits to Jones cash
of $9,000.
If this is the case, all of the income is ordinary, and
cannot be offset by capital losses (except to the extent of
the annual $3,000 allowance).
*****
David Hardesty
Author of Taxation of Employer Stock and Options
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