My employer offers an ESPP program through which we can buy stocks with some discount. Assume the discount is D and the market price in the day when the stock is purchased is P. The stock is purchased at C = P * D(%).

When I input the buy transaction in Quicken, I can see the amount invested as the C * # of stocks and the cost basis as P * # of stocks.

What puzzles me, is that the gains and losses are calculated using the cost basis instead of the ESPP invested amount. So, even if the stock lost a smaller amount than D, Quicken shows that I have losses.

Shouldn't it be that the discount D is actually a gain? When I analyze my portfolio, which of the two prices of the stock I should use?


1 Answer 1


The difference is ordinary income. If the price drops and you sell for exactly what you paid, you have an income of D and a capital loss of D which usually cancel each other, but not always. For example, if you already have over $3000 in losses, this loss won't help you, it will carry forward.

The above changes a bit if you hold the stock for 2 years after the beginning of the purchase period. If sold between your purchase price and fair market the day you bought, the gain is only the difference, no gain to fair market + loss.

Pretty convoluted. Your company should have provided you with a brief FAQ / Q&A to explain this.

My friends at Fairmark have an article that explains the ESPP process clearly, Tax Reporting for Qualifying Dispositions of ESPP Shares.

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