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Generally, your gain on a stock option exercise is the difference between the option (or exercise) price and the fair market value of the stock on the exercise date. If the gain is the result of exercising a nonqualified stock option, the gain is taxed at exercise as ordinary income; any additional appreciation of the stock price is taxed at capital gains rates when you sell the stock. Since cashless, same-day sale exercises have become so popular, many companies calculate the taxable gain on the cashless exercise of an NQSO as the difference between the exercise price and the sale price (even if the company continues to calculate the gain for cash exercises using the fair market value).

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