I believe if I were to sell the new new shares before one year after exercising that it would create a disqualifying disposition and I would have to pay ordinary income tax. What happens if I sell the exchange shares? Would that create a disqualifying disposition too?

Do swapped shares keep their acquisition date?Michael Gray CPA, Stock Option Advisors

The old shares keep their characteristics, including basis and acquisition date. According to the regulations, for the purposes of determining a disqualifying disposition, the holding period for all of the shares including the exchanged shares are considered as starting on the date of exercise. More importantly, according to regulations section 1.

The shares incentive stock options stock swap which ordinary income would be recognized are considered sold first. A may swap other shares of X Corporation stock to exercise the option. The tax basis for 60 shares is zero, with an acquisition date of June 1, It appears to me you should follow the shares considered to be sold for regular tax purposes in determining AMT reporting and adjustments.

There are no AMT adjustments. Because you still have to pay the alternative minimum tax for exercising the option. Also, if you expect the value of the shares to increase dramatically, you will benefit more by not swapping shares because you will own more shares without a swap.

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