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Level 2
February 23, 2025
Question

Nonstatutory stock option carryover gain/loss

  • February 23, 2025
  • 1 reply
  • 13 views

I have a question about how Nonstatutory stock options affect a capital loss carryover. Here are the details of my situation:

  • Grant price = $100
  • # of shares = 225
  • Exercise price = $205

Shares were exercised and sold on the same day for cash (~$7500 for taxes, ~$16000 net proceeds). These amounts are also correctly reflected in my wage income in my W2

 

On my 1099-B, I have the following info:

  • Proceeds (1d) = $46125
  • Cost basis (1e) = $22500
  • Gain/loss (not reported) = $23625

However,  Turbotax is showing that my capital loss carryover from a previous year (~$40k) has been reduced by $23.6k to $13.4k (which includes the $23.6k "gain" from the option sale + $3k from previous year carryover), which doesn't make sense because this is not a capital gain. Can someone confirm this is the correct behavior, and if not, provide info as to how to correctly account for this ? Thanks!

1 reply

Level 15
February 23, 2025

When you exercise the non-statutory stock options (NQSO), the discount on their acquisition is ordinary income and reported on your W-2 form as such. The sale of the stock can also produce capital gain income if you sell it at a gain. I believe in this case you sold the shares when you acquired them so the capital gain should be minimal. The problem then is that the cost basis reported on your Form 1099-B probably does not include the discount income reported on your W-2 form. So, when you enter the Form 1099-B in TurboTax, you may need to adjust the cost basis by adding all or a portion of the discount to what is reported as the cost basis on your Form 1099-B. You will see an option for that when you enter the Form 1099-B information:

 

 

When you enter your 1099-B form, you should indicate that you have ESPP stock and the  type of investment is nonqualified stock option (NQSO). You will see an option to allow TurboTax to help you determine the correct cost basis for the sale. In your case, assuming you sold all of the shares when you acquired them, since the discount is listed on your W-2 form,  you can take the sales proceeds less the cost of the shares to determine the total gain on sale, and then subtract the discount to determine what the capital gain should be. You can use that to determine the correct cost basis, simply the sales price less the capital gain.

 

 

 

 

 

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Level 2
February 24, 2025

Awesome, this worked as you described!