Last Jan 2013, I sold my 2011 & 2012 ESPP shares. In both years I had claimed FEIE where the taxable benefit [discount] was included in my income and was part of the excluded amount in both tax returns.
Now that I've sold my shares and having claimed the exclusion in those previous years, does it follow that my cost basis for the 2011/2012 shares sold in 2013 should NOT include the discount portion when reporting capital gain or loss?
FEIE and ESPP discount...cost basis
Moderator: Mark T Serbinski CA CPA
Hi zad - I think your cost basis should include the "discounted" portion. For example, if your company had 50-50 matching, and you buy $100 of stock, you receive $200 of shares (a $100 taxable benefit treated like employment income). Let's say 2 years later the shares are worth $250. You sell them all, and your gain is $250 -$200 = $50.
See, the cost basis is treated like the company paid you another $100, and you bought $200 worth of stock.
Is this your situation? I had a similar case this year.
See, the cost basis is treated like the company paid you another $100, and you bought $200 worth of stock.
Is this your situation? I had a similar case this year.
Thanks MGeorge for your reply. Sorry I wasn't quite clear with my question and scenario. I do know that the discounted portion is indeed included in the cost basis. What I would like to know is how to treat the discount portion that had already been included in my previous years' FEIE.
Hi Nelsona, here's my example:
Let's just say for both years [2011 and 2012] the stock was at $100 per share and with a 10% discount, my purchase price for each share is $90 and the discounted amount is $10.
In 2013, I sold 20 shares at $150 = $3000.
$2000 = adjusted cost basis [20 x (purchase price $90 + discount $10)]
$1000 = capital gain
So far so good with my Canadian tax return. What I'm in doubt is dealing with my 2013 US return. Since the discount portion were both included in my 2011 and 2012 T4s and I have, in both years, claimed FEIE, how should I calculate the cost basis in my US return? Do I still add the discount portion as part of my cost eventhough the amount was previously excluded from my 1040 since I filed form 2555 for both years?
Hi Nelsona, here's my example:
Let's just say for both years [2011 and 2012] the stock was at $100 per share and with a 10% discount, my purchase price for each share is $90 and the discounted amount is $10.
In 2013, I sold 20 shares at $150 = $3000.
$2000 = adjusted cost basis [20 x (purchase price $90 + discount $10)]
$1000 = capital gain
So far so good with my Canadian tax return. What I'm in doubt is dealing with my 2013 US return. Since the discount portion were both included in my 2011 and 2012 T4s and I have, in both years, claimed FEIE, how should I calculate the cost basis in my US return? Do I still add the discount portion as part of my cost eventhough the amount was previously excluded from my 1040 since I filed form 2555 for both years?
I agree with MG, even though you were able to exempt the income, it was still reported income, just as if you had a reinvested dividend. Your ACB should include the T4 income.
After 20 years, I am severely cutting back on responses. Do not ask specifically for my help. There are a few others on this board that can answer most questions. All the best