How is basis calculated for swapped stock shares?

September 26, 2011

Date:   13 Mar 2009
From:   Lukas

Dear Mr. Gray

On May 2, 2008, I exercised an ISO for 25,000 shares with a per share option price of $19.00 and fair market value of $140.47.

When I exercised the option, I swapped 2,820 shares with a tax basis of $136.85 and 561 shares with a tax basis of $12.75, plus cash of $79.24. These shares came from previous stock grants and options that were held for the time required for a qualified disposition.

On November 13, 2008, I sold 10,000 shares at $79.24 per share in a disqualified disposition. I am still holding the remaining shares.

What tax basis do I use to calculate the disqualified disposition?



Date:   6 Apr 2009

Hello Lukas,

Zero. The tax basis stays with the original shares that you “swapped.” Only the cash paid of $79.24 is assigned to the shares you received.

Good luck!

Mike Gray

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