In 2015, Liza exercised an incentive stock option that had been granted by her e
ID: 2457101 • Letter: I
Question
In 2015, Liza exercised an incentive stock option that had been granted by her employer, White Corporation. Liza acquired 100 shares of White stock for the option price of $190 per share. The fair market value of the stock at the date of exercise was $250 per share. Liza sells the stock for $340 per share in 2017.
If an amount is zero, enter "0".
a. The result is a ( Select; positive or negative) AMT adjustment of $ (??) in 2015 and a ( Select; positive or negative) AMT adjustment of $ (??) in 2017.
b. How would your answers in (a) change if Liza had sold the stock in 2015 rather than 2017?
As a result, $ (???) AMT adjustment for the spread is necessary in 2015 as this amount would be ( Select; included or excluded) in regular taxable income.
$ (??) AMT adjustment would arise upon the sale of the shares in 2017 either, as the basis for regular tax and AMT purposes would be the ( Select; same or different)
Explanation / Answer
Option Spread = Fair Market Value of Stock When Exercised – Option Price
a) In year 2015= (250*100shares) -(190*100)= $6000 Positive
In year 2017= (340*100shares) -(190*100)= $15000 Positive
b)
A long-term capital gain or loss can be claimed on the stock only if the stock was held for at least 2 years after the ISO was granted and at least 1 year after the exercise of the option.
If the holding period test was not satisfied, then the gain on the stock sale is treated as ordinary wage income that is equal to the option spread:
Ordinary Wage Income = Option Exercise Price - Option Grant Price
selling Price (340*100)= 34000
Purchase Price (190*100)= 15000
gain 19000
Amount Reported as wages
(250*100) - (190*100)= 6000
Capital gain $13000
b) $13000 will be included in regular taxable income if stock is sold in 2015 . This is a short term capital gain.
In 2017: AMT liability does not have to be reported if the stock is sold before the end of the tax year, since it will then have to be reported as taxable income under the regular tax system.It is sold after 1 year from the end date of option exercised so it is Long term capital gain.
In year 2017= (340*100shares) -(190*100)= $15000 Positive Long term capital Gain. Basis of tax and AMT purpose is same.
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