Understanding stock warrant taxation: exercise vs. selling - capital gains implications?

3 Thanks for the clarification, but I'm still confused about one thing. If warrants are basically just options to buy at a certain price, why would the tax treatment be different than other options? I thought options were always taxed as ordinary income regardless?

8 Options and warrants are similar but have some key tax differences. With standard listed options, you're right that certain transactions can trigger ordinary income treatment. However, warrants that are publicly traded and held as capital assets typically follow capital gain/loss rules when you sell them directly. The ordinary income treatment applies when you exercise the warrants - that's when you're using them to purchase stock at below-market prices, which the IRS views as compensatory. But selling the warrants themselves on the open market is a capital transaction when they've been held as an investment.

7 How long did it take them to analyze your documents? My situation with warrants is pretty complex since some were from employer compensation and others I bought directly. Would they be able to handle that mix?

18 Sounds interesting but I'm skeptical. Did they actually give you specific tax advice or just general information? I've found most of these services just spit back general IRS guidelines without actually taking a position on the nuanced questions.

15 The analysis was pretty quick - I got my results within a few hours. The platform definitely handled the complexity well. The service actually gave me specific advice tailored to my situation, not just generic information. They noted that my employer-granted warrants had different tax treatment than the ones I purchased on the open market, and they explained exactly how to report each type. The AI even identified a specific tax court case that applied to my situation, which was pretty impressive.

5 How does this actually work? I've literally spent hours on hold with the IRS before giving up. Are they just using some trick to skip the line or something?

18 Yeah right. Nobody gets through to the IRS these days. And even if you did, the average IRS phone representative isn't going to understand the finer points of warrant taxation. This sounds like a waste of money to me.

12 They use a system that keeps dialing and holds your place in line, then calls you when an IRS agent picks up. It's completely legitimate - they're just automating the hold process so you don't have to stay on the phone for hours. When I got through, I was able to ask for someone in the investments department who specifically handles questions about equity securities. They transferred me to a specialist who was actually quite knowledgeable about warrant taxation. She confirmed exactly what I needed to know about the distinction between selling vs. exercising warrants and the proper tax forms to use.

1 Thanks for pointing that out! I don't think NARG has made any adjustments to the warrant terms since I've owned them, but that's a good point to keep in mind. How did you determine when exactly your holding period reset? Was there specific documentation or notification you received?

22 The company sent out a formal notification when they did the reverse split that specifically mentioned the impact on warrant terms. The notification included the effective date of the adjustment, which became my new acquisition date for tax purposes. If your company hasn't made adjustments, you're probably fine with your original purchase date. But it's always worth checking your account statements or contacting investor relations to confirm, especially if there have been any corporate actions during your holding period.

9 I used TurboTax last year for my warrant sales. You just report them as regular capital asset sales on Schedule D and Form 8949. Enter the ticker symbol (LMXWW in your case), your cost basis, sale price, and dates. Make sure you select "long-term" if you held them over a year. The only tricky part might be if you exercised any warrants (rather than selling them) - that would need different treatment. But for straight sales of the warrants themselves, it's pretty straightforward.

That's excellent advice about keeping detailed records! I hadn't thought about the lot identification issue. Since I've been buying these warrants periodically over the past 18 months, I definitely have multiple lots at different basis prices. Quick question - when you say "specify which lots you're selling," do you need to tell your broker beforehand which specific lots to sell, or can you make that election when you're doing your taxes? I'm wondering if I should sell my highest basis lots first to minimize the current year's gain, or if there's a better strategy I should consider. Also, great point about double-checking the 1099-B. I'll make sure to review that carefully when I get it. Thanks for sharing your experience!

You generally need to specify which lots you're selling at the time of the sale, not when filing taxes. Most brokers will ask you to choose your cost basis method (FIFO, LIFO, or specific identification) when you place the sell order, or they'll have a default method set up in your account settings. For tax optimization with warrants that have appreciated significantly like yours, you might want to consider selling your highest basis lots first to minimize current year gains, especially if you're close to bumping into a higher tax bracket. However, you should also think about whether you expect to be in a higher or lower tax bracket next year. One strategy some people use is to realize some gains this year and some next year to spread the tax impact, particularly if it helps you stay in the same capital gains tax bracket. The 0%, 15%, and 20% capital gains brackets have specific income thresholds, so it might be worth calculating where you'll land with different sale scenarios. Definitely coordinate with your tax advisor on the timing and lot selection strategy before you execute any sales!

Great point about AMT considerations! I hadn't thought about that angle. I'm actually in a position where a large warrant sale could potentially trigger AMT since I'm already close to the threshold with my regular income. From what I understand, the AMT rate is 26% or 28% depending on your income level, which could be higher than the standard long-term capital gains rates of 0%, 15%, or 20%. So even though selling the warrants qualifies for capital gains treatment, the effective rate under AMT might make it less attractive than I initially thought. Your point about spreading sales across multiple years makes a lot of sense. I'm wondering if there are any specific strategies for timing these sales to minimize AMT impact? Maybe selling smaller portions each year to stay under the AMT exemption thresholds? Also curious about your point regarding exercise vs. sell from an investment perspective. While the tax treatment might favor selling the warrants, if I really believe in the underlying company's long-term prospects, exercising and holding the stock could make sense despite the higher tax rate on exercise. It's definitely a more complex decision than just looking at the immediate tax implications.