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How to Report a Cashless Exercise on Schedule D

Calculation Steps

1.

Enter the date of the cashless exercise on Part I of Schedule D for Short-Term Capital Gains and Losses. Record this same date as both the date acquired and the date sold.

2.

Record the sale proceeds reported by the brokerage firm on Form 1099-B as the sale price on Schedule D.

3.

Multiply the number of shares sold by the cost per share of stock sold. If this is the same figure on Form 1099-B, add the commission for selling the stock. If Form 1099-B has a lower figure, the commission has already been applied against sale proceeds and should not be counted again in this step. Add any fees paid to exercise the stock purchase option. Record this result on Schedule D as the cost or other basis.

4.

Subtract the cost basis from the sales price. This is the gain or loss for Schedule D.

Tips and Warnings

  • The amount on Schedule D for a cashless exercise should be a small loss. The amount of loss is comprised of the selling commission plus any fees paid to exercise the stock options.
  • Do not report the price to exercise the stock options as the cost basis. This is only part of the basis. The other component of basis is the amount of compensation income that is added on the annual W-2. If the cost basis reported on Schedule D is not the entire market value of the stock on the cashless exercise date, tax is incorrectly assessed twice---on the W-2 and Schedule D.


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