Question:   I purchased stock from my employer under an employee stock purchase plan. Now I have received a Form 1099-B from selling it. How do I report this?

Answer:   The holding period requirement is satisfied if:

• You do not sell the stock within 1 year after the option is exercised.
• You do not sell the stock within 2 years after the option is granted.

If the special holding period requirement:

• Is satisfied, the sale of stock is treated generally as giving rise to capital gain or loss. You may have compensation income if the option price was below the stock's fair market value at the time the option was granted; or
• Is not satisfied, the compensation income that you should report in the year of the sale is the amount by which the fair market value of the stock at the time of purchase (or vesting, if later) exceeds the exercise price. Any additional gain or loss is treated as capital gain or loss.

If the holding period requirement is satisfied but the option exercise price is below the fair market value of the stock at the time the option was granted:

• You report the discount as compensation income (wages) when you sell the stock on Form 1040, Line 7.
• If your gain is more than the amount you report as compensation income, the remainder is a capital gain reported on Form 1040, Schedule D (PDF).

If you sell the stock for less than the sum of the amount you paid for it plus the amount reported as compensation, your loss is a capital loss, but you still may have ordinary income.