NSO exercise at loss

[alex136]

I have exercised NSO (non-qualified stock option) from my employer at a loss - I paid a strike price that is higher than the Fair Market Value at the time of the exercise. I was expecting this to be reported as negative income in my W-2, however, my employer did not report it, as they claim that only positive income from option exercise should be reported in that way and suggested me to report it separately.

How should I report this loss? Should I create a 1099-B, despite not having received one from a broker? I could not find any guidance for this situation; hope to be able to claim a deduction in income due to this loss.

Thank you!

[DavidD66]

Your employer is correct, there is no such thing as negative income form exercising stock options with a strke price greater than the market price.  As for how to report your loss, have you sold the stock you received when you exercised the options?  If so, you should have received a Form 1099-B for that sale.  If you have not sold the stock, you only have an unrealized loss, which you cannot claim/deduct on your tax return.