Clear Money Guide
What this guide covers
A quick view of the questions and evidence developed below.
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Updated July 28, 2026. Quick answer: A disqualifying disposition reports the full spread at purchase — purchase-date price minus what you paid — as ordinary income, regardless of your sale price. If the stock fell after purchase, you report that income and take a separate capital loss.
The measurement date is purchase, not sale
This is the part that catches people. Ordinary income is fixed at the purchase-date spread under IRC §421(b). Selling below that price does not reduce it — the difference becomes a capital loss, which is subject to its own annual limits against ordinary income.
Worked shape
| Event | Amount |
|---|---|
| Paid per share | $34 (15% off $40) |
| Price at purchase | $60 |
| Ordinary income | $26 per share — fixed here |
| Sold later at | $45 |
| Capital loss | $15 per share |
You report $26 of ordinary income per share having realised $11. The loss is real but it offsets capital gains first, not the ordinary income that created the problem.
This is the strongest single argument for selling at purchase: it makes the ordinary income and the cash you actually receive the same number.
Sources
IRC §421(b); IRC §423(a)(1); IRC §1211(b) (capital loss limitation).
This states what the cited authority says. It is not tax advice.