T sells one share acquired a few years earlier through an ESPP plan — a qualified disposition. The FMV was $100 on the grant date and $120 on the purchase date, the discount was 15%, the purchase price was $102, and the sale price was $150.
The compensation income would generally be the lessor of:
(a) 15% of $100
(b) $150 (sale price) minus $102 (“amount paid for the share”)
I put “amount paid for the share” in quotes because that’s literally what it says in the tax code.
Here’s the complication: the share was community propery, and T’s spouse died before the sale. The share got a stepped-up basis from $102 to $140.
Does this affect the calculation of compensation income? Should T use the $140 stepped up basis as the “amount paid for the share” in that calculation, or keep using $102?