If I exercise underwater ISOs, can I claim a loss?
From what I understand, if I exercise in-the-money ISOs, I'll be taxed on the supposed gains, even if the stock isn't tradeable (because, for example, it's stock in a privately-held company). Does the converse apply? That is, if I exercise underwater ISOs, can I claim a loss?
Let's say as an example that the current valuation is /share, but the options are priced at /share.
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If you do this, you own a stock worth , with a basis of . The loss doesn't get realized until the shares are sold. Of course, we hope you see the stock increase above that price, else, why do this?
No, because you didn't lose anything. When you exercise ISO "at loss" you're buying stock without a discount, that's it.
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