The gap between your strike price and the current market value is ordinary income, not capital gains. The gap between the current market value at the time of ex

The gap between your strike price and the current market value is ordinary income, not capital gains. The gap between the current market value at the time of exercise and time of sale is capital gains (or loss). You can only apply $3,000 per year of capital loss to ordinary income (but the remainder can be carried over to future years). AMT can also fuck you. Suppose you have 1000 options with a strike price of $1, and your company IPOs at $10. If you exercise immediately you have $9000 of ordinary income. If a year later the stock is worth $0, you have $9000 of capital loss and can deduct up to $3000 of ordinary income for three years. If a year later the stock is worth $100 and you sell it, you have $9000 of ordinary income and $90,000 of long-term capital gains. If instead you wait a year to exercise your options and the stock goes up to $100, you have $99,000 of ordinary income and $0 of capital gains. If your plan is to sell your stock ASAP, there's no reason to exercise before you can sell (unless your lockout is over a year or your options are going to expire), but if you plan to hold onto the stock then exercising at the lowest price you can is optimal tax-wise if the stock actually does go up. Stock options are complicated and you should absolutely talk to a tax professional before doing anything with them.