Qualifying Disposition


DEFINITION of 'Qualifying Disposition'

A sale, transfer or exchange of stock obtained through a qualified stock option incentive plan, namely incentive stock option (ISO) plans and employee stock purchase plans (ESPP), that qualifies for favorable tax treatment for the employee selling the stock. In order to be a qualifying disposition, the employee must sell at least one year after receiving the stock, and two years after receiving the incentive stock option (ISO), or the beginning of the ESPP offering period.

The capital gains treatment for a qualifying disposition only applies to the amount of the sale represented by the difference between the exercise price of the option's stock and the market price at which the stock was sold.

BREAKING DOWN 'Qualifying Disposition'

Non-statutory stock options (NSOs) do not qualify for capital gains tax treatment, and are always taxed at ordinary income rates. Some companies do not offer ISOs because, in contrast to non-statutory (or non-qualified) option plans, there is no tax deduction for the company when the options are exercised.

  1. Employee Stock Purchase Plan - ...

    A company-run program in which participating employees can purchase ...
  2. Non-Qualified Stock Option - NSO

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  3. Incentive Stock Option - ISO

    A type of employee stock option with a tax benefit, when you ...
  4. Stock Option

    A privilege, sold by one party to another, that gives the buyer ...
  5. Capital Gains Treatment

    The specific taxes assessed on investment capital gains as determined ...
  6. Put-Call Parity

    A principle that defines the relationship between the price of ...
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