What is the correct treatment for swapped ISO shares?

November 29, 2004

Date:   Tue, 26 Oct 2004
From:   Matt


I exercised ISOs through a stock swap and my company was bought out before the one-year holding period, resulting in a disqualified dispositon. What is the correct treatment of the shares that were swapped?

Thanks for your help!


Date:   Wed, 24 Nov 2004

Hello Matt,

The shares for which you didn’t meet the holding period and must report ordinary income are considered sold first. You can use the original acquisition date and tax basis for the “swapped” shares. Depending on your facts, they may qualify for long-term capital gains.

Good luck!

Mike Gray

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