Question

Meredith acquires 5,216 shares of Grey-Sloan with NQOs and 18,488 shares with ISOs. The Fair market value of the Grey Sloan stock is $22 per share on the exercise date. Meredith's exercise price is $8 per share for the NQO and ISOs.

What is Meredith's basis in the 18,488 shares she acquired through ISOs?

Answer 1

Basis in terms of shares is the price paid for the shares on spot less all expenses. Meredith has purchased 18488 shares through ISO (Incentive Stock Options). As it is an employee stock option scheme, employees are rewarded with stock options rather than cash. Thus, the privileges enjoyed by the employees is that they can purchase the stock options at a given exercise price which is obviously less than the market price or fair value. As basis is the price paid for the shares, we will calculate basis based on exercise price i.e. price on exercise date.

No. of shares (a)	Excercise price (b)	Basis (c) = (a)x(b)
18488	$ 8	$ 147904

Therefore, the basis for 18488 shares acquired through ISO's is $ 147904.