Yvonne exercises incentive stock options (ISOs) for 100 shares of Apple Corporation stock at the option price of $100 per share on May 21, 2019, when the fair market value is $120 per share.She sells the 100 shares of stock 3 1/2 years later for $140.Determine the recognized gain on the sale and classify it as capital or ordinary.
A)$2,000 LTCG.
B)$2,000 ordinary income.
C)$4,000 LTCG.
D)$4,000 ordinary income.
E)None of these.

Question

Quizplus · Accepted Answer

The amount of the gain on the sale is the difference between the selling price of $140 and the cost basis of $100, which is $40 per share. Since Yvonne held the shares for more than a year, the gain is a long-term capital gain (LTCG). Therefore, the recognized gain on the sale is $4,000 (100 shares x $40 per share) and the correct choice is C.

Yvonne Exercises Incentive Stock Options (ISOs) for 100 Shares of Apple