Yvonne exercises incentive stock options (ISOs)for 100 shares of Apple Corporation stock at the option price of $100 per share on May 21,2016,when the fair market value is $120 per share.She holds the stock for only seven months and sells the shares for $140 per share.Determine the recognized gain on the sale and classify it as capital or ordinary.
A)$2,000 ordinary income and $2,000 STCG.
B)$2,000 ordinary income and $2,000 LTCG.
C)$4,000 ordinary income.
D)$4,000 LTCG.
E)None of the above.

Question

Quizplus · Accepted Answer

Yvonne's recognized gain is $4,000 ($140 sale price - $100 option price = $40 gain per share x 100 shares). Since she held the stock for less than a year, the gain is classified as $2,000 ordinary income (the difference between the exercise price and the fair market value at exercise) and $2,000 short-term capital gain (the difference between the fair market value at exercise and the sale price).

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