What do I need to know about tax terms for ESPP (employee stock purchase plan) shares?


A disqualifying disposition means selling your shares within one year after the purchase date or within two years from the beginning of the applicable offering period. A qualified sale means holding your shares for more than one year after the Purchase Date and more than two years from the beginning of the applicable offering period. 

About qualifying dispositions

Disqualifying disposition

If you sell the shares within one year after the purchase date or within two years from the beginning of the applicable offering period, part of your gain is taxed as ordinary income.

Quicken enters a MiscInc transaction in the investment transaction list, with a category of _ESPP Self Income or _ESPP Spouse Income, for the amount that is ordinary income. Ordinary income is the difference between the price paid for the stock and the market value on the purchase date.

  • Disqualifying sale definitions
    Term Definition
    Bargain element (Purchase date fair market value minus discount price) times the number of shares purchased
    Capital gain Total proceeds minus cost basis
    Cost basis (Purchase price times number of shares) plus bargain element

Qualifying disposition

If you hold the shares for more than one year after the purchase date and more than two years from the beginning of the applicable offering period, part of your gain is still taxed as ordinary income, but it is usually a smaller percentage of your total gain than if you had held for only a short term. This amount is the lesser of a) the amount of discount at the offering date, and b) the sale price of the stock minus the price you paid to buy the stock. The bargain element can't be more than the gain in a qualifying disposition. Capital gain is calculated as the sale price, minus the cost basis. The cost basis is calculated as the amount actually paid plus the amount reported as ordinary income.

Quicken enters a MiscInc transaction in the transaction list, with a category of _ESPP Self Income or _ESPP Spouse Income, for an amount equal to a) the offering price, times the discount allowed, times the number of shares purchased, or b) the sale price of the stock minus the price you paid to buy it.

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