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Robin D.
Robin D., Senior Tax Advisor 4
Category: Tax
Satisfied Customers: 15580
Experience:  15years with H & R Block. Divisional leader, Instructor
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What are the long-term vs. short-term considerations when

Customer Question

What are the long-term vs. short-term considerations when selling stock from an employee stock purchase plan (ESPP)?
Submitted: 1 year ago.
Category: Tax
Expert:  Robin D. replied 1 year ago.
HelloThe tax consequences to you depend on whether or not you meet the special holding-period requirements for Section 423 ESPPs under the Internal Revenue Code: two years from the start of the offering and one year from purchase. The tax consequences for you also depend on stock-price changes between the purchase and your eventual sale.Not meeting the holding-period requirement of two years from offering/grant and one year from purchase is called a disqualifying disposition (DD). This occurs when you sell, transfer, or gift the stock too soon to get all of the favorable tax treatment that is available with tax-qualified ESPPs.You not only have to hold the stock long enough to get long-term capital gains rates for one year but also hold the stock within two years of the grant.If you sell or dispose of the stock without meeting the ESPP holding periods, you will recognize ordinary income at the time of sale. This income will appear on your Form W-2.