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Exercise and sale of stock options

Level 1

Client was issued a W2 with and amount on Box 12V for \$105,000.  Client was also issued a 1099B with proceeds listed at \$116,000 and "Unknown" Cost Basis. Looking over the supplements there were two transaction in the year. One in the amount of \$42,000 that list the cost basis of \$42,000.  The second in the amount of \$74,000 that does not list the cost basis, its blank.

When entering the information on Schedule D do I use the amount on Box 12V of the W2 as the cost basis?  Is the gain the difference between the \$105,000 and \$116,000?

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• ProSeries Professional

4 Replies 4
Level 2

usually with the exercise of options, the w2 shows you the amount of money that was included in wages of the stock that was exercised, this amount is not reported on Sched D, it is just mandatory that when certain stocks (such as employee stocks) are exercised, they must be reported as income, with appropriate tax withheld on them. When they sell these stock rights, they are reported on 1099B , in the supporting schedules, it usually states the proceeds , the cost basis and adjusted cost basis (which accounts for the taxes already paid on these stocks when exercised), this adjusted basis, should used on Sched D to report the true gain or loss, unless the stock had a tremendous run from the time it was exercised, until the time it was sold, the gain is usually very small, but hey, in this market, the sky is the limit, hope this helps!

Level 1

Thank you.

I have one more question, how do I figure out what the cost basis is.  The 1099B and supporting docs do not show the cost basis.  In the 1099B the cost basis is stated as "UNKNOWN".  The only other figure I see is on a sale transaction report that states the principal amount minus commission/fees.  The settlement amount is the proceed amount shown on 1099B, is the principle amount the cost basis?

Level 13

You ask your client.  "How much did you pay for that stock when they gave you a \$105,000 discount, before you turned around and sold it for \$116,000?"  He has that information.

Level 2

maybe your client can get paperwork from the company they work for, if this was from an employer/employee stock issue. otherwise, broker should have cost basis info, its possible, brokers might have changed and cost basis wasnt transferred, but i would bet dollars to donuts that there is some type of cost basis, but clients employer may be able to shed some light on this.