I have a sale of ISO shares with Box X (unknown holding period) checked on my 1099-B. How do I make TurboTax compute this as long-term capital gains?

[jacob8]

To be clear, the sale satisfies the holding requirements for Incentive Stock options.  My broker just didn't have the information to make that determination themselves, because I had transferred these shares from a different brokerage firm.

[AmyC · Accepted solution]

You can make the change to long term. Since your broker did not know the length of time, I imagine they don't know the basis and your form is marked noncovered as well.

The good news, if the IRS decides to ask questions, you can prove the paper trail and the long term holding to which you are entitled.

[jacob8]

Then do I just select "long term" instead of "unknown holding period"?  Since that drop-down specifically asks how the holding was reported on the 1099-B, I would have expected to instead enter it as-is and correct it later, similarly to how cost basis adjustments are handled. 

[DavidD66]

Yes, just select "long term".  Unlike cost basis adjustments, you're not correcting or adjusting anything you are filling in the blank and providing the missing information.  

[mness369]

The only amount I have listed for the Box X row is under 1d.  I do not have an amount under 1e.  What does this mean.  Box 5 is also checked as "non covered security".   What does that mean?

[MaryK4]

A non-covered security is an SEC designation under which the cost basis of securities that are small and of limited scope may not be reported to the IRS  If box 5 is checked, you do not have to complete boxes 1b, 1e, 1f, 1g, and 2, and you do not have to check box 12.

@mness369

[Kmad]

Does that result in a cost basis of $0 and a higher tax?

[GeorgeM777]

No, the holding period is not related to your basis (i.e., your cost in purchasing the ISOs).  The holding period is important though because if you know the holding period, you will be able to determine whether your gain or loss was a long term gain/loss or a short term gain/loss.  

If your basis is listed as 0 on your 1099-B or similar form you received, then your tax liability will indeed be much higher than it probably needs to be.  That is because you probably spent some amount of money to purchase the ISOs.  The total cost of your ISOs is your cost basis.  Therefore, you need to determine how much you spent to purchase the ISOs.  

An employer will provide their employee with one copy of Form 3921 for each exercise (purchase) of ISOs during the calendar year. You may receive multiple 3921 documents or a consolidated statement showing all your exercises if you had two or more exercises during the calendar year.  When you are entering information into TurboTax regarding your ISOs, keep your Form 3921 with you as you will likely need to refer to it as you enter the ISO information.  If you do not have it, or cannot find it, contact your employer to obtain another copy. 

@Kmad