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ESPPs: Taxes

How long must I hold shares purchased under a Section 423 ESPP to receive favorable tax treatment?

To get favorable long-term capital gains treatment, you have to hold the shares purchased under a Section 423 ESPP at least one year after the purchase date and two years after the grant (or enrollment) date. However, even if you hold the stock long enough, not all of the gain over your purchase price will be capital gain. You will still recognize some ordinary income (see a related FAQ) at sale.

On your IRS Form 1040 tax return, you report capital gains on Form 8949 and Schedule D. For details, see the Tax Center for annotated examples of reporting sales of ESPP stock.

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