- quote -

Consider the two most often used employer stock options:

a) Incentive Stock Options (ISO) also called Statutory Stock
Options or Qualifying Stock Options, and

b) NonQualifying Stock Options (NQSOs)

The major tax difference is that if you meet minimum vesting
and holding periods the cost basis of the stock acquired by
exercising ISOs is only the exercise price, and no ordinary
income is recognized.

For NQSOs, you must recognize as ordinary income the bargain
element, where the Bargain Element is Fair Market Value of
the stock upon exercise, less the exercise price. Cost
basis then becomes Exercise price plus bargain element,
which happens to be FMV of stock at exercise.

However, both tyopes of options require the person entitled
to the option to be exercised before anything is recognized.
So I do not see how the option can be sold. If you mean
exercise and sale of an employer option, then see above. In
both case, ISO or NQSO, Schedule D is used to report the
sale of the underlying stock, and the type of option and
holding periods determine cost basis and tax treatment.

Issues of restricted stock, warrants, units of combinations
of thingies, are not addressed here.

__
Art Kamlet ArtKamlet [at] AOL.com Columbus OH K2PZH

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- quote -

I understand, but typically, employer options are not
marketable securities and usually if transferable, it's via
gift or in some cases bequest.

--
David M. Woods, EA, ChFC, CLU
Woods Financial Services
Norwood, MA 02062
www.woods-financial.com

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- quote -

Sorry, I should have been clearer. My intent was to ask the
question about stock options (ISO), the kind typically
granted to employees of a firm.

-HW "Skip" Weldon
Columbia, SC

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"HW \"Skip\" Weldon" <skip5700removethis[at]hotmail.com> writes:
- quote -

(1) What do you mean by "stock options"? Exchange-traded
options most certainly give rise to capital gain/loss. And
I bet that if there was a way to sell employee stock
options, that would give rise to a cap gain/loss.

(2) What do you mean by "sales"? I've never heard of
employees selling employee stock options. Exercising,
certainly, and selling the stock acquired through the
exercise, certainly, but not selling the options themselves.

- quote -

It depends what you're talking about.

If you are actually talking about selling options they
*will* end on up Sched D.

If you are talking about exercising employee stock options,
then they will end up on your W-2 (if NQOs or ISOs where the
acquired stock was sold in the same tax year as the
exercise) or on 6251 as an AMT preference item (if ISOs
where the stock was not sold in the same tax year as the
exercise).

--
Rich Carreiro rlcarr[at]animato.arlington.ma.us

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HW "Skip" Weldon wrote:
- quote -

Hmmmm. I thought they were capital transactions -- usually
short-term, as most options are for terms of six months or
less.

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"HW "Skip" Weldon" <skip5700removethis[at]hotmail.com> wrote:
- quote -

Skip,

I believe you are mistaken as stock options are capital assets.

--
David M. Woods, EA, ChFC, CLU
Woods Financial Services
Norwood, MA 02062
www.woods-financial.com

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HW \"Skip\" Weldon <skip5700removethis[at]hotmail.com> wrote:
- quote -

We're not talking employer stock options, right?

We're talking simple stuff, like puts and calls for listed stocks?

There are several possibilities:

1. You buy an option and it expires worthless.

In this case, you have a short or long term capital gain
depending on holding period, which ends at expiration date.
Sales price is $0 or if your software allows, "EXP." Report
on Sch D as any other stock sale.

2. You buy an option and then sell it before expiration.

Similar to above.

3. You write an option and it expires worthless.

You have no holding period, so this is always reported as a
short term gain.

4. You write a covered or naked call and you gets called:

Include the option premium you received as part of the
resulting gain/loss on theunderlying stock, and use the
holding period of the underlying stock to determine short or
long term. In other words, if you held XYZ Copr long term
and ten write a covered call on XYZ which gets exercised
against you a week later the entire transaction is long
term.

5. You write a put and get put.

Similar to 4; include the option premium received in the
cost of the stock you acquired as a result of the put.

6. You buy a call or put and then exercise it: Include the option
premium in the resulting gain/loss when closing the transaction on
the underlying stock.

Pub 550 has a chart to tell you whether to include the
premium on the cost or sale side of the underlying security,
but that won't affect the gain.

__
Art Kamlet ArtKamlet [at] AOL.com Columbus OH K2PZH

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Philmarti[at]aol.com (Phil Marti) wrote:

- quote -

A related question. Sales of stock options are ordinary
items (most options, anyway). I don't believe they can be
netted agains long-term losses. So where do the stock
options sales go on the return?

-HW "Skip" Weldon
Columbia, SC

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johnmolinda[at]yahoo.com (John Molinda) writes:

- quote -

Just the same as a short-term stock sale. All your capital
transactions go on Schedule D, where they are netted. IOW,
if you have $150,000 short-term capital gains and $150,000
long-term capital losses, your Schedule D bottom line will
be zero.

See the Schedule D instructions and Publication 550.

Phil Marti
Clarksburg, MD

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"John Molinda" <johnmolinda[at]yahoo.com> wrote:

- quote -

I would suggest that three short term sales of investment
homes in the same year would put you into the real estate
dealer category, making the income ordinary and possibly
subject to SE tax.

--
David M. Woods, EA, ChFC, CLU
Woods Financial Services
Norwood, MA 02062
www.woods-financial.com

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Hi all. I want to clarrify the previous real estate question
I just posted. It really involved washing cap gains with
older cap losses.

I have a total of $150,000 in capital losses from several
years ago with a business sale and technology stock sales.
This year, I sold 3 investment homes which I held for less
than 12 months. From those real estate sales, I have
$150,000 in capital gains. I understand that short term cap
gains are taxed at your ordinary income rate. However, would
I be able to do a complete "wash" and owe zero tax on the
$150,000 in cap gains I earned from the sale of investment
real property by using the $150,000 in cap losses I incurred
from several years ago from the stock market bubble burst
and the business sale I took a loss on?

I'm also confused about how the IRS treats the sale of short
term real property investments. Is it cap gains or ordinary
income (the type of tax not the rate, that is)?

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