Pricing, tax & closing
The 83(b) Election — What It Means If You're Buying Unvested Stock
A 30-day, non-extendable filing that matters if your secondary purchase comes with a vesting schedule attached.
Most secondary purchases involve fully-vested common stock, where an 83(b) election isn't relevant. But some secondaries — particularly buying out an early employee's early-exercised, still-vesting options — transfer stock that remains subject to a company repurchase right (a substantial risk of forfeiture) as it continues vesting. In that specific case, the buyer, not just the original holder, needs to think about filing their own 83(b) election.
The election lets you choose to recognize any taxable spread now, at the time of purchase, rather than at each future vesting date — which matters enormously if the stock's value is expected to rise between now and full vesting.
How it works
- Confirm whether the shares you're buying are fully vested or still subject to a vesting schedule and company repurchase right — this determines whether an 83(b) election is even relevant to your purchase.
- If they're still vesting, you generally have 30 days from the date you acquire the stock to file the election with the IRS — there is no extension, and missing the window forfeits the choice entirely.
- Filing now means you pay ordinary income tax today on any spread between what you paid and current fair value — and nothing further at each future vesting date, only capital gains treatment later on any further appreciation.
- Not filing means each future vesting tranche is taxed as ordinary income on the spread between your purchase price and fair value at that vesting date — which can be a much larger number if the company has appreciated.
Worked example
A buyer purchases 10,000 unvested, early-exercised shares at $0.50 per share — matching the current fair value, so there's no spread today. The shares vest over the next 4 years, during which the company's fair value rises to $5.00 per share.
- Purchase price (= FMV today)
- $0.50 / share
- Ordinary income if 83(b) filed within 30 days
- $0
- Fair value at full vesting (4 years later)
- $5.00 / share
- Ordinary income exposure if NOT filed (10,000 × $4.50 spread)
- $45,000
Why it matters: Filing costs nothing when there's no spread at purchase, but missing the 30-day window on stock that's expected to appreciate can convert what would have been $0 of ordinary income into tens of thousands of dollars of it, spread across the vesting schedule.
Watch out for
- This only applies to stock still subject to vesting/forfeiture at the time you buy it — most secondary purchases of fully-vested common stock don't involve this decision at all.
- The 30-day clock is strict and starts from your purchase date, not from when you think about filing — mail it (certified, with a copy) well before the deadline.
- This is a genuinely complex, fact-specific tax decision — confirm applicability and mechanics with a tax advisor before your purchase closes, not after.