Form 3921 box 3 Exercise Price Per Share is less than box 4 FMV on Exercise Date, TurboTax, Smart Check doesn't like that, but that's what's recorded in my Form 3921?

The Form 3921 is informational only, so you don't need to enter it in TurboTax.  

When you sell shares, you'll receive a 1099-B and enter it in the Investment Income section. Type '1099b' in the FIND window, then 'Jump to 1099b'.

If your stock is employee stock, your Exercise Price will be less than the FMV, as you receive a discounted price per share.

Click the link for more detailed info on ESPP stock sales.

But TT script asks for 3921 information as part of 1099-b ISO script, so I have to enter it. FMV (1.13) is less than Exercise Price (1.50) on the form 3921.

It does seem a little strange to exercise an option when the FMV is less than the strike price.

In almost all cases there's absolutely no real "income tax return reporting" reason to use the ISO step by step interview.

Your basis per share is $1.50 and I'd assume there's no effect of the ISO exercise on your W-2.  So simply use the default 1099-B entry form and report the sale that way.  Normally, entering the sale of stock acquired via an ISO using the default 1099-B entry form requires that you adjust the basis reported on the 1099-B, but I'd guess that wouldn't be necessary in this case as I'd think the broker did use that $1.50 per share.

The step by step interview isn't the problem - that all works out fine even with the FMV < strike price. It's SmartCheck that raises an error  when FMV < strike price. Even though that may be unusual, it should be acceptable!

I don't work for TurboTax, I just try to help.  If the error doesn't prevent you from filing, then forget about it.  If it does, delete the trade and re-enter without using the step by step guidance.

I have the same issue.  I only have a for 3921 not a 1099-B.  How did you resolve this and get past the smart check?

It turned out to be easy: leave the for unchanged, then click "DONE" rather than "rerun smart check".

"I have the same issue.  I only have a for 3921 not a 1099-B."

You shouldn't be having the same issue as jjen2271 seemed to be encountering the problem because the 1099-B interview asks for the Form 3921.  Did you enter your Form 3921 in the "ISO Exercise & Hold" interview; is that's what causing the error?

Yes, I followed the questions for form 3921 and have the error at final review

The AMT adjustment is the excess of the FMV at exercise over the exercise price.  I don't believe the excess of the exercise price over the FMV results in a "negative" adjustment to AMT.  I'd say simple delete the entry.

Well, ignoring the Smart Check error didn't solve the problem. TT refuses to transmit the return if the FMV is > the exercise price, and I can't get around that. I hesitate to lie about having a form 3921 - this is clearly a TT bug that needs fixing.

The whole point of using the "ISO Exercise and Hold" interview is to calculate the necessary AMT adjustment.  You have no AMT adjustment.  Delete the entry.

When reporting a 1099-B ISO Stock Sale it's not possible to avoid the 3921 questioning by TT, regardless of the claim "The Form 3921 is informational only, so you don't need to enter it in TurboTax". Note that this is not the same interview as the "ISO Exercise and Hold".

In this case you don't have to use the ISO "step by step" process.  Just user the regular 1099-B entry method with the correct "out of pocket" cost.  I'd thank that would be exactly what the broker is reporting.

I have the same problem for 2021 taxes. I spoke to 3 different tax experts about this and none of them could figure out how to get around the issue of the FMV being less than the exercise price. This does happen, so I don't understand why they can't let this go through. In my case, the reason why I exercised at that price even though my exercise price was more than the value is because I sold them for more. 

@Rebecca32  On our test return, we were able to enter ISO information where the exercise price for the option, at the time of exercise, was greater than the FMV of the underlying stock.  In other words, when we exercised the option to purchase the stock, we immediately had an unrealized loss.  In full disclosure, we did indicate on the page that requested purchase information, that we did not receive Form 3921.  Upon indicating that we did not receive a Form 3921, we had the option to enter information about our ISO purchase/exercise.

Here are screenshots of two pages from our test return that contain the information about the ISO exercise, purchase, and subsequent sale.

Hello - I am getting confused with the difference between "Exercise Price" and "FMV per share" since the ISO income is already reported on my W2 and not to double count, which one do I use as my adjusted cost basis for reporting in the 1099 section in TT?  Do I use the FMV or Exercise price?  

(I have these numbers from a 3921 form that I received)

1. The exercise price is the fair market value when you were granted your option to purchase the stock. This is the amount added to your w2 income and is your basis in the stock along with any expenses to buy or sell the stock.

2. Exercise plus expenses to buy and sell.

@pr0

thank you Amy!

From what I see the gain on the ISO and the NQs are reported on my W2 and taxed as regular earnings.  Thus, I should adjust my cost basis in TurboTax to be the same as the selling price in order not to show any gain in the 1099-B section and be double taxed.  Do I understand this correctly?

Yes. Whatever is listed as additional income in your w2 along with any additional expenses to buy and sell will be your cost basis, 

@pr0

Thanks.  I am actually adjusting the individual transactions and their respective cost basis so I need to take the total from W2 and translate it using the received forms from employer to individual cost basis for each trade.

This created a situation where all of my cost basis for the ISO & NQs are the same as the selling price so effectively 0 profit if looking at 1099-B only.  Does this make sense to you?

Maybe.  If your cost basis was the same as the selling price, then yes, you will have neither a gain nor loss (this assumes no commission or fees were charged).  However, and to follow-up on the comments from @AmyC, your exercise price is going to be your cost basis if the sale is a qualifying disposition.  A qualifying disposition for ISOs is when you sell 2 years after the grant date and more than 1 year after the exercise date. 

In contrast, a disqualifying disposition is anything other than a qualifying disposition.  With a disqualifying disposition  you pay ordinary tax on compensation income and long term or short term gain on capital gains.

For ISOs, compensation income is the spread when ISOs are sold for a profit.  The ISO cost basis is the cost at exercise for the shares plus any amount included in compensation income from a disqualifying disposition. 

@pr0

Thank you. This is helpful.  

I understand ISO -> Cost basis = selling cost (as income reported on W2)

for NQ - is this different or same?

Yes, for a NQSO, the cost basis is equal to the exercise price, multiplied by the number of shares exercised. 

@pr0