Print This Page

Date:   Mon, 11 Sep 2006
From:   Yinbo

What are the tax consequences for making a gift of ISO shares more than two years after the grant date and more than one year after the exercise date?

Thanks,
Yinbo

Answer

Date:   Thu, 05 Oct 2006

Hello Yinbo,

Since the holding period requirements have been met, there is no income tax consequence for the transfer.

If the value of the stock (during 2006) exceeds $12,000 on the date of the gift, it should be reported on a gift tax return.

The donee will receive the holding period, regular tax basis and AMT tax basis of the stock from the person who exercised the option, and so can sell the stock for a long-term capital gain.

The employee probably won't be able to recover any AMT credit relating to the exercise of the ISO. The donee does not receive the AMT credit from the donor.

Good luck!

Mike Gray

For more information about incentive stock options, request our free report, Incentive Stock Options - Executive Tax and Financial Planning Strategies.

IRS Circular 230 Disclosure: As required by U.S. Treasury Regulations, you are hereby advised that any written tax advice contained in this answer was not written or intended to be used (and cannot be used) by any taxpayer for the purpose of avoiding penalties that may be imposed under the U.S. Internal Revenue Code.