Qualifying Disposition

AAA

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.

INVESTOPEDIA EXPLAINS '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.

RELATED TERMS
  1. Capital Gains Treatment

    The specific taxes assessed on investment capital gains as determined ...
  2. Incentive Stock Option - ISO

    A type of employee stock option with a tax benefit, when you ...
  3. Non-Qualified Stock Option - NSO

    A type of employee stock option where you pay ordinary income ...
  4. Stock Option

    A privilege, sold by one party to another, that gives the buyer ...
  5. Employee Stock Purchase Plan - ...

    A company-run program in which participating employees can purchase ...
  6. Cash Bonus

    A lump sum of money awarded to an employee, either occasionally ...
Related Articles
  1. Getting Acquainted With Options Trading
    Options & Futures

    Getting Acquainted With Options Trading

  2. Should Employees Be Compensated With ...
    Options & Futures

    Should Employees Be Compensated With ...

  3. Stock Safety: Top 3 Ways to Limit Your ...
    Options & Futures

    Stock Safety: Top 3 Ways to Limit Your ...

  4. Applying Binary Options To Equity Markets
    Options & Futures

    Applying Binary Options To Equity Markets

Hot Definitions
  1. Conduit Issuer

    An organization, usually a government agency, that issues municipal securities to raise capital for revenue-generating projects ...
  2. Financing Entity

    The party in a financing arrangement that provides money, property, or another asset to an intermediate entity or financed ...
  3. Hyperinflation

    Extremely rapid or out of control inflation. There is no precise numerical definition to hyperinflation. Hyperinflation is ...
  4. Gross Rate Of Return

    The total rate of return on an investment before the deduction of any fees or expenses. The gross rate of return is quoted ...
  5. Debit Spread

    Two options with different market prices that an investor trades on the same underlying security. The higher priced option ...
  6. Leading Indicator

    A measurable economic factor that changes before the economy starts to follow a particular pattern or trend. Leading indicators ...
Trading Center