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Author: Vile Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 25235  
Subject: ESPP Date: 11/3/2010 8:13 PM
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My wife has an ESPP through The Home Depot. I want to sell some shares but I don't understand something. When I look at my holdings, it says I have x number of shares that are 423b qualified shares and x number of shares that are 423b subject to disqualification. What does that mean?

I want to sell some shares and the quantity is over the amount of qualified shares. Does that matter? What are the implications of selling each type?

I have searched the FAQs but can't seem to find anything that addresses that. TIA

Cheers,

Vile
NEVER SAY DIE!!!
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Author: BruceCM Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 24619 of 25235
Subject: Re: ESPP Date: 11/25/2010 6:05 PM
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A 'qualified disposition' with either ESPP or ISO stock options means that you have held the shares at least one year after exercising the option AND you have held the shares at least 2 years following the granting of the options. With ESPPs that have a bargain element (the difference between the option price and the fair market value of the shares on the day of exercise), a qualifying disposition means the bargain element will be treated as a long term capital gain. With a disqualifying disposition, the bargain element will be ordinary income. In either case, the value of the shares above or below the fair market value on the date of exercise will be long or short term capital gain (loss) depending on the holding period of the stock.

Note: with ESPP shares, this does not include the discount, if any, the employer gave the optioned shares, which will forever be ordinary income when the shares are sold.

For a good description of the tax issues surrounding ESPPs, see Kaye Thomas explanation at Fairmark:

http://www.fairmark.com/execcomp/espp/qualifying.htm

BruceM

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