How does the ISO holding period work?

January 18, 2006

Date:   Sun, 25 Dec 2005
From:   Andy

The holding period for ISOs is confusing the way you explain it. (Hold the stock for two years after grant and one year after exercise.) I believe it should state exercise the option two years after grant and sell the stock 1 year after exercise.


Date:   Mon, 09 Jan 2006

Hello Andy,

I’m sorry you find this confusing. The requirements are spelled out in the Internal Revenue Code.

I think it might help if I give you an example, which shows your suggested explanation is in error.

John was granted an ISO for 100 shares of Supercorp stock on April 1, 2004.

He exercised the option on January 1, 2005.

In order to meet the holding period requirements, John must hold the stock until after April 1, 2006. The stock would be held more than two years after the grant date after April 1, 2006 and more than one year after the exercise date after January 1, 2006. The later date is April 1, 2006.

Good luck!

Mike Gray

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

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