ISO qualifying vs disqualifying disposition - getting different explanations everywhere I look!

The confusion you're experiencing is pretty common with ISOs! Let me clear this up for you. For an ISO disposition to be "qualifying," you must meet BOTH timing requirements: 1) hold the shares for at least 1 year after the exercise date AND 2) hold the shares for at least 2 years after the grant date. If you fail either requirement, it's a disqualifying disposition. For a disqualifying disposition, the "spread" at exercise (the difference between fair market value at exercise and what you paid) is treated as ordinary income. In your case, that's the $23,000 difference. This would show up on your W-2 in the year you sell. If you wait for a qualifying disposition, any gain would be treated as long-term capital gains, which typically has a lower tax rate than ordinary income. The trade-off is you have to hold the shares longer and take the risk of the stock price declining.

After getting totally confused with my company stock options last year, I discovered this amazing tool called taxr.ai (https://taxr.ai) that saved me from making an expensive tax mistake with my ISOs. I was also getting mixed messages about qualifying vs disqualifying dispositions until I uploaded my grant documents to the system. The tool analyzed my specific ISO situation, explained the exact holding requirements for my grants, and even created a personalized tax timeline showing when each batch of my options would meet the qualifying disposition requirements. It also calculated the potential tax difference between selling now vs waiting for qualifying status.

Just wanted to follow up on my question about taxr.ai. I decided to try it after our discussion, and it was actually really helpful! I uploaded my ISO grant documents and exercise confirmations, and it immediately flagged that I was going to face an AMT liability this year that I hadn't planned for. The tool showed me exactly which of my ISO exercises would trigger AMT and by how much. It also gave me a visualization of when each batch would reach qualifying disposition status. The most helpful part was the comparison showing the tax difference between selling now vs. waiting for qualifying status - in my case, waiting would save about $8,200 in taxes if the stock price stays stable. Definitely worth checking out if you're dealing with stock options. I wish I'd known about it before I exercised my ISOs last year!

After spending HOURS on hold with the IRS trying to get clarification on ISO disposition rules (they kept transferring me between departments), I finally discovered Claimyr (https://claimyr.com). It's a service that gets you through to a live IRS agent usually within 15 minutes. You can see how it works here: https://youtu.be/_kiP6q8DX5c I was super frustrated because I needed an official answer about my specific ISO situation before making a decision about selling. Claimyr got me connected to a knowledgeable IRS agent who confirmed the exact ISO holding period requirements and explained how my specific situation would be treated.

I have to admit I was wrong about Claimyr. After my skeptical comment, I decided to try it as a last resort because I was desperate to get clarification on my ISO taxation before the tax deadline. Surprisingly, it actually worked exactly as described. I got a call back in about 25 minutes with an IRS agent already on the line. The agent was able to confirm the exact requirements for qualifying disposition (both the 1-year from exercise AND 2-years from grant requirements). She also explained how AMT would impact my specific situation based on my exercise date and the amount of spread. Saved me from making a $12,000 tax mistake since I was about to sell some ISOs thinking they qualified when they actually didn't yet meet the 2-year from grant requirement. Worth every penny for that peace of mind!

Something important to consider that nobody's mentioned yet is the AMT credit you can get in future years if you get hit with AMT from ISO exercises. I went through this last year. I exercised ISOs and had to pay AMT on the paper gain. BUT, when I eventually did a qualifying disposition, I got much of that AMT back as a credit. Your situation might be different, but don't forget about the AMT credit potential when planning your exercise and sell strategy!

As someone who's made ISO mistakes before, I strongly recommend keeping a spreadsheet with all your grant dates, exercise dates, fair market values, and exercise prices. It's easy to lose track, especially if you have multiple grants or partial exercises. Also, don't forget about state taxes! Everyone focuses on federal, but states have different rules for how they treat ISO dispositions.

This is such a timely discussion! I just went through this exact situation last month. One thing that really helped me was understanding that the "disqualifying disposition" ordinary income treatment only applies to the spread at exercise, not the entire gain. So in your case, Mateo, if you sell now for $42,000 and you paid $12,000 for shares worth $35,000 at exercise, here's what happens: - The $23,000 spread at exercise becomes ordinary income (taxed at your regular income rate) - The additional $7,000 gain ($42,000 - $35,000) is treated as short-term capital gains This is different from a qualifying disposition where the entire $30,000 gain ($42,000 - $12,000) would be long-term capital gains. Also, don't forget you may have already triggered AMT liability when you exercised in March 2024, regardless of whether you sell now or later. That $23,000 spread was an AMT preference item in 2024. The decision really comes down to: pay ordinary income rates on $23,000 now + short-term capital gains on $7,000, versus waiting and potentially paying long-term capital gains rates on the full $30,000 (assuming the stock price holds).