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Subject:   Losses Deducted from gains in Employee options
Date:   Tue, 28 Nov 2000
From:   Faisal

Can I deduct trading losses against gains I have when I exercised my non qualified employee stock options? If I made $100,000 on my employee options can I deduct $70,000 in other trading losses?

Sincerely,
Faisal

Answer

Date:   4 Dec 2000

Hello Faisal,

No. Most trading losses are capital losses, which are deductible up to the amount of capital gains plus $3,000. Any unused capital loss deductions may be carried forward indefinitely.

The income from exercising non-qualified options is not capital gain, but additional compensation income, so it doesn’t qualify for offset by capital losses.

Good luck!

Mike Gray

For more information about non-qualified stock options, request our free report, Non-Qualified 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.