Capital losses on early-purchased stock?

Question

If I exercise an early purchase clause on employee incentive stock options to go ahead and purchase the stock and the company later goes bust, can I take capital losses against that stock?

Answer 1

Yes

When exercising a stock option you will be buying the stock at the strike price so you will be putting up your money, if you lose that money you can declare it as a loss like any other transaction. So if the stock is worth $1 and you have 10 options with a strike at $0.50 you will spend $500 when you exercise your options. If you hold those shares and the company is then worth $0 you lost $500.

I have not verified my answer so this is solely from my understanding of accounting and finance. Please verify with your accountant to be sure.