BUG: ESPP Adjustment too high when stock goes down

[stellarsjay]

Hello,

Please see:

https://turbotax.intuit.com/tax-tips/investments-and-taxes/empl[product key removed]ase-plans/L8NgMF...

We have a standard ESPP. Every 6 months, it vests, and you get 15% off the lower of either the starting or ending price. This time, the stock went down, so the spread was only the 15%. I did not "lose money" on the transaction. Let's say the stock started at $55 and ended at $50. So I still get 15% off the $50. The stock was sold immediately.

When I enter in all of the Form 3922 information, TurboTax is trying to compute the $5 downtrend as an additional loss. This ends up being more than the "Bargain Price Income" that is already reported on my W-2. Unless there is something I am not understanding here, the adjusted cost basis should be to zero out the gain/loss (since I sell on the exercise date), and all of those adjustments should add up to the "Bargain element" that is listed on my W-2 (Box 14, Other, ESPP1).

[ThomasM125 · Accepted solution]

You are correct in that normally if you sell the stock as soon as you acquire it, your capital gain will be at or approximate $0, since the bargain element will be reported on your W-2 form. The problem is that often that is not reflected on the form 1099-B that the broker issues reporting the stock sale, as they will often list the cost basis as what you paid for the stock, thus ignoring the discount you received.

To correctly enter the form 1099-B information then, you need to modify the cost basis to reflect the proper gain, which if often $0, as I said. 

To do this in TurboTax, you will see an option Adjusted Cost Basis  or  The cost basis on my statement is incorrect when you enter the sale that you can use to report the correct cost basis.

[stellarsjay]

Okay, that makes sense. It seems like a TT bug then, where it seems to have trouble here if the stock for the ESPP ends lower than at the beginning of the period. Because in that case, with look back and employee discount, you definitely don't "lose money" by selling it right away at the end of the period. You still get a 15% gain off the lower current price.

I was able to manually adjust the cost basis per your instructions. But this definitely threw me for a loop for a while! I went researching.

Thank you!