Unsure of how to answer TurboTax question: "Did you buy any ISO stock in 2024?"

[Fliparagon1]

When I started at my privately held company in January 2022, my compensation package included the option to purchase Common Stock—both Incentive Stock Options (ISOs) and Non-Qualified Stock Options (NQSOs). Both types had the same exercise price per share, with a vesting schedule of 25% in year 1, 25% in year 2, and the remaining 50% in year 3.

In late 2023, a deal to acquire my company was announced, and the acquisition closed on May 1, 2024. After the closing, employees with vested, in-the-money stock options were informed that our vested shares would be automatically cashed out—partly in stock of the acquiring company and partly in cash. Additionally, we were told that instead of paying the exercise price out-of-pocket, the amount would be deducted from the payout we received.

Now, while preparing my 2024 taxes in TurboTax, I encountered a question related to ISOs: "Did you buy any ISO stock in 2024?" Since I never actively exercised my ISOs by purchasing shares myself—but rather, my options were automatically converted into the acquiring company's stock and cash as part of the acquisition—would this still be considered as having "bought" ISO stock for tax purposes?

[ThomasM125]

You should indicate that you bought incentive stock (ISO) since you acquired the shares in 2024. For practical purposes, however, it may not have any impact on your tax return since you sold them in the same year. The purchase of the shares could create alternative minimum tax income in the year you acquire the shares, but only if you didn't sell them in the same year.