In 6/07 I exercised (purchased) 1000 shares of stock options for a company I used to work for. I also own about 1000 shares of the same company stock that I purchased 5 years ago. These 2 blocks of 1000 shares were being held with different brokerage companies. In 2/08, I sold 1000 shares of the stock. The brokerage house that I used for the sale housed the "stock option" shares. For tax purposes, does it matter whether I use the cost basis of those stock options (which will be taxed as short term gain) or can I use the cost basis of the shares that I have owned for 5 + years (for the long term gain)? I sold the 1000 shares because the price was right and I used the brokerage that was easier to contact to make the sale, which happened to be where the "stock option" shares were.

The stock shares you sold are the ones you got through the option, because those are the only shares that were in that account. In the future I would suggest that you combine your brokerage accounts to give you more flexibility in this sort of thing. However, even then there are a couple of steps you need tro take to make it clear which stock you are selling - otherwise you have to use First-In-First-Out. From Pub 550:

Adequate identification. You will make an adequate identification if you show that certificates representing shares of stock from a lot that you bought on a certain date or for a certain price were delivered to your broker or other agent.

Broker holds stock. If you have left the stock certificates with your broker or other agent, you will make an adequate identification if you:
+ Tell your broker or other agent the particular stock to be sold or transferred at the time of the sale or transfer, and
+ Receive a written confirmation of this from your broker or other agent within a reasonable time.

Stock identified this way is the stock sold or transferred even if stock certificates from a different lot are delivered to the broker or other agent.

Single stock certificate. If you bought stock in different lots at different times and you hold a single stock certificate for this stock, you will make an adequate identification if you:
+ Tell your broker or other agent the particular stock to be sold or transferred when you deliver the certificate to your broker or other agent, and
+ Receive a written confirmation of this from your broker or other agent within a reasonable time.


If you sell part of the stock represented by a single certificate directly to the buyer instead of through a broker, you will make an adequate identification if you keep a written record of the particular stock that you intend to sell.