On March 1 of year 0, Judy was granted an incentive stock option (ISO) to purchase 50 shares of her employer’s stock for $10 per share. The FMV of the stock on the date of the grant was $12 per share. On May 1 of year 1, Judy exercised her option when the stock was selling for $15 per share. On July 1 of year 2, Judy sold all of the shares for $20 per share. What amount and character of income does Judy recognize in year 2?

$0

$500, ordinary

$500, long-term capital gain

$600, ordinary

Answer rating: 100% (QA)

Step 1 Granted on March 1 Year 0 50 Shares at the price of 10 per share Step 2 Exercised on ... View the full answer