Question

lando received 20 nqos (each option gives him the right to purchase 30 shares of stock for $12 per share) from his employer. at the time he started working, the stock price was $11 per share. now that the share price is $25 per share, he exercises all of the options. two years later lando sells the stock for $27 per share. what is lando's basis in his stock for purposes of calculating the gain or loss at the time of the sale?

Answer 1

Lando's basis in the stock for calculating gain or loss at the time of the sale is $15,000, which includes the cost to exercise the options and the benefit received from exercising them.

Step-by-step explanation:

Lando received 20 non-qualified stock options (NQOs), with each option allowing him to buy 30 shares for $12 per share. Initially, the stock price was $11 per share, and now it has risen to $25 per share. To calculate Lando's basis for his stock for the purpose of determining the gain or loss at the time of the sale:

• First, we determine the total cost to exercise the options: 20 options x 30 shares/option x $12/share = $7,200.
• Then we need to account for the benefit he received by exercising the options: 20 options x 30 shares/option x ($25 - $12) = $7,800.
• The total basis is the sum of the cost to exercise and the benefit received: $7,200 + $7,800 = $15,000.
• Two years later, Lando sells the stock for $27 per share, which does not affect the calculation of his basis at the time of sale.

Lando's basis in his stock at the time of the sale is $15,000.