What happens to my options if the company goes bankrupt?
June 4, 2003
Date: Thu, 8 May 2003
Say that your total compensation from a privately-held company is $125,000, of which $100,000 is paid in cash and $25,000 is paid in non-qualified stock options.
The options are granted at 50% of the established FMV of the common stock. The FMV at exercise is $8 and the option price is $4. An option is granted for 6,250 shares to arrive at $25,000.
If the company goes bankrupt and ceases to exist, can the individual claim a $25,000 loss? Can it be a long-term capital loss if the options have been held more than one year?
Date: 30 May 2003
I don’t have a “magic formula” for you.
Since you (presumably) didn’t report any taxable income for the grant of the options, you have no tax basis in them. No loss is allowed.