Options Trading Tutorial

Can I offset stock option exercise gains with losses?

I exercised some non qualified stock options this year and the gains will be reported as W2 income complete with withholding. Can I take short term losses on other stocks to offset these gains? Or am I limited to $3000 write off?

Public Comments

1. That is a good question. Usually a stock option gain goes on your W-2, so that it is taxed as ordinary income. When you report it on Schedule D, you show your cost as the same thing as the sales price plus any brokerage fee and show a small loss due to brokerage fees. Consequently, it does not get taxed as a capital gain since it is on your W-2 and is taxed as ordinary income as if it were a salary. So you would be limited to the $3000 unless you had other non-option capital gains to offset the losses.
2. Gains on stock options are treated as ordinary income. Therefore, the income has nothing to do with capital gains...the answer is "no".
3. You're limited to $3000 against income other than capital gains and losses