Martin Corporation granted an incentive stock option to employee Caroline on January 1, 2012. The option price was $150, and the FMV of the Martin stock was also $150 on the grant date. The option allowed Caroline to purchase 160 shares of Martin stock. Caroline exercised the option on August 1, 2016, when the stock's FMV was $250. Unless otherwise stated, assume Caroline is a qualifying employee. If Caroline sells the stock on September 5, 2018, for $350 per share, she must recognize (ignore alternative minimum tax)
A. long-term capital gain of $16,000 in 2018.
B. long-term capital gain of $32,000 in 2018.
C. ordinary income of $16,000 on the exercise date and a long-term capital gain of $16,000 in 2018.
D. 0. No gain or loss is recognized at exercise or sale with incentive stock options.
Answer: B
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