I have a qualified ESPP. This year I sold shares for long term capital gains. Some of the transactions were qualified dispositions. Should I use Etrades Adj cost basis?

[MarilynG]

Yes, if Etrades has provided you with an 'Adjusted Cost Basis', then use that amount. 

Start by entering the cost basis as reported on your 1099B in 1e, 

If you have a statement showing the corrected basis, then you can select the option to "enter additional info on my own" (or just click Continue if the "on my own" button isn't present) and enter the corrected basis on the next screen.

Click the link for a detailed article on reporting the 'bargain element' if not reported on a W-2 for ESPP stock sales.

[Claude4]

Just be sure to pick up on the fact that for a qualified sale of ESPP stock, the amount of taken into income is the lesser of: 

- The excess of the FMV of the shares on the option’s grant date over the exercise price, or

- The excess of the FMV of the share on the date of its disposition (i.e. the sales price of the stock) over the exercise price (i.e. what you paid for the stock).

If the sale is nonqualifying, the amount taken into income is the excess of the FMV of the shares on the option's exercise date over the exercise price.  

So, based on your exercise price, if you have a loss on your qualified ESPP stock sale, then you report  negative compensation income (i.e. an ordinary loss, not subject to the capital loss limitation of $3,000 per year).  

For IRS support, see IRS Equity (Stock) - Based Compensation Audit Techiques Guide (https://www.irs.gov/businesses/corporations/eq[product key removed]-compensa[product key removed]iqu...), under the caption "Qualifying Dispositions": 

Special rules apply to a qualifying disposition of stock acquired under an ESPP if the option’s exercise price was less than the share’s FMV when the option was granted.  Per IRC §423(c), the employee recognizes compensation income equal to the lesser of:

- The excess of the FMV of the share on the date of its disposition over the amount paid for the share, or

- The excess of the share on the option’s grant date over the exercise price.