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How are secondary sales of private shares taxed?

Secondary sales may trigger capital gain reporting and company transfer restrictions — document every step.

Rates and rules change. Content is reviewed for tax year 2026. Check the last-reviewed date and methodology on each page, then confirm against IRS or state guidance before you file.

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In plain terms

A is selling private company shares to another buyer before an IPO. If you are selling shares you own, the gain over your basis is generally a . Company transfer restrictions and right-of-first-refusal rules often apply, so documentation matters as much as the tax math.

How the tax works

Selling shares you hold is a disposition, generally taxed as or loss versus your basis.

Your basis depends on how you acquired the shares, exercise price plus any income already recognized, for example.

Holding period determines short- vs: long-term treatment.

Private shares usually carry transfer restrictions, so the company may need to approve the sale.

What to check on your end

  • Your basis in the shares being sold.
  • Your holding period from acquisition.
  • Company transfer restrictions or approval requirements.
  • Whether any portion is treated as compensation rather than .
  • The forms you will receive to report the sale.

Common mistake

Forgetting basis or selling without company approval: Using $0 basis overstates your gain, and ignoring transfer restrictions can derail the sale entirely.

Example scenario (hypothetical)

Illustration only, not your tax situation.

Example: Lee sells private shares acquired by exercising options. Lee's basis is generally the exercise price plus any income already taxed. The gain over that basis is reported as a , and the company's approval process must be followed.

When a CPA is worth it

  • You are unsure of your basis.
  • The sale is large or part of a structured program.
  • Transfer restrictions are unclear.
  • Part of the proceeds may be compensation.

Sources and notes

Primary tax claims on this page are supported by the official and secondary sources below. Broker and software links describe reporting mechanics — confirm rules against IRS or state guidance.

ISO and NSO exercise timing, AMT on ISO spread, and disposition reporting.

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VestingTax.com is not a CPA firm or tax preparer. Grants, employers, and states all differ. Use the cited IRS and state sources above, your own documents, and a qualified tax professional before you make decisions from this guide.

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