In the current year, employee F is given an incentive stock option (ISO) entitling him to purchase 100 shares of his employer Sigma Corporation's stock for $50 per share.He exercises the option in the following year when the shares are selling for $80 per share.If F sells these 100 shares four years later for $200 per share, he will recognize

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When F exercises the option, he doesn't recognize any income. However, when he sells the shares four years later, he will recognize a long-term capital gain of $150 per share ($200 selling price - $50 exercise price = $150 gain). This is because he held the shares for more than one year after exercising the option, making it a long-term capital gain. There is no ordinary income recognized upon the sale.

In the Current Year, Employee F Is Given an Incentive