Are my options still ISOs if I no longer work for the company?
January 16, 2004
Subject: ISO question
Date: Sat, 13 Dec 2003
Very informative site.
I was granted ISO’s in a publicly traded company, and I was allowed to keep my options upon leaving the company two years ago. I recently exercised the options and sold them in a “cashless” same day sale. My question is, are those options still considered ISO’s (for tax purposes) since I am no longer an employee? Can I offset the profit from this sale against capital losses?
Date: Wed, 07 Jan 2004
The options were no longer ISOs. In order to qualify as an ISO, the option holder must have been an employee of either the corporation granting the option, a parent or subsidiary corporation of the granting corporation, or a qualifying predecessor corporation during the period beginning on the grant date and ending the day 3 months before the date of exercise. (IRC § 422()(2).)
The income from the exercise of the option is ordinary income, not eligible for offset by more than $3,000 of other capital losses.