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I opted for ESPP stock options in my previous company. The plan offered 10% discount on market value. When I opted for the plan the company created a etrade.com account on my behalf and I could see stocks credited quarterly for deductions made through my paycheck.

Question is on this particular transaction

  • Date Acquired: 03/31/2018
  • Capital Gains: Long-Term
  • Type: ESPP
  • Purchase Price: $63.86
  • Purchase Quantity: 68
  • Discount Percent: 10%
  • Grant Date FMV: $70.95
  • Expected Disposition Type: Disqualifying Disposition

Current market price of the stock is $73.81

How should I calculate my profit?

Etrade also shows

  • Purchase Date FMV: $80.50 Est
  • Cost Basis(per share): $80.50
  • Net Gain/Loss: -$6.69

How did they arrive at net loss though the price has increased and it is a long term capital gain?

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It looks like your ESPP has a lookback provision, where you get 10% off the lower of the FMV on the grant date (i.e. start of offering period) or the purchase date (i.e. end of the offering period). In this case the price rose over the offering period, so you get 10% off the grant date FMV. Since this is a disqualifying disposition, your entire discount ($16.64/share) should be reported on your W-2. The stock has since dropped since the purchase date, when your cost basis is established, hence the capital loss. Assuming you sold today it would be a long-term capital loss. It looks like your brokerage is reporting this correctly but make sure the discount is only taxed once; in some cases you are required to manually increase your basis to reflect the discount reported on your W-2.

  • Thanks Craig. I checked and my ESPP has look-back provision. The Grant date FMV is $70.95. Is this to be used for calculation or a different number? Current share price is $73.81. Any chance you can share steps to calculate the loss/discount? – Nik Apr 1 at 20:47
  • Since it's a disqualifying disposition it's pretty simple. Your entire discount is taxed like regular income, and should be reported on your W-2. Your cost basis is the purchase date FMV. Everything beyond that is capital gain/loss, either short- or long-term depending on time since the purchase date. – Craig W Apr 2 at 2:07
  • Sorry that I keep this dragging as I don't know these terms. I haven't sold my shares yet and can hold on to them for a couple of years. Can I ever see any profits based on my real purchase price of $63.86 or it doesn't work like that? At what time will this transaction not be a 'disqualifying disposition'? – Nik Apr 2 at 17:25
  • If you wait to sell at least 2 years from the grant date and 1 year from the purchase date, you have a qualifying disposition. In that case more of your discount can be treated as a long-term capital gain. It gets pretty complicated though. There are websites that go through it. – Craig W Apr 2 at 19:21

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