What are the holding requirements for ESPPs?

August 9, 2002

Date:   Wed, 26 Jun 2002
From:   Loai

If I have bought stocks through an ESPP (employee stock purchase plan), how long do I have to hold them for them to be considered long term? One or two years?

Thanks in advance for your answer.



Date:   09 Aug 2002

Hello Loai,

In order to qualify for long-term treatment, the stock must be held more than two years after the grant (subscription) date and more than one year after the exercise date. Confirm these dates with your employer. Also, remember you will still report ordinary income when you sell the stock based on the discount available at the grant date. If the holding period requirements are met, the ordinary income is the lesser of the gain from the sale of the stock or the discount as of the grant date.

There is no “escape hatch” for ESPP shares like for ISOs, so avoid disqualifying dispositions. The ordinary income for a disqualifying disposition is the excess of the fair market value on the date of exercise over the option price, not limited to the gain at sale.

Good luck!

Mike Gray

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