AMT and Equity Compensation
Alternative minimum tax, nonqualified stock options, incentive stock options and other forms of equity compensation.
AMT Adjusted Amount in case of ISO
Posted by: deepTax, April 2, 2012 08:24AM
Hi,
I need help regarding calculating my AMT adjusted amount. I am using H&R Deluxe software.

I have received my company's ISO (5000 options) at price of $0.5 and then this company got acquired and during acquisition acquirer paid $1.27 per stock. So I exercised my stocks and I was asked by my company to pay 2500 and then I got a check of 5624 (per share price calculated to be $1.1248). I got 1099B and there also net proceeds were 5624 and my cost basis was 2500. It has marked it as covered security and it will be short term.

After talking with my HR and Finance dept. I found that rest of the amount is held back and I will get it in year 2012.

So I have added this transaction in sale of stocks/options etc. and i did calculate my taxes.

Then when I reached to "Taxes" section in H&R Software it did ask me the following question:

Ques: "Do you need to make any Alternative Minimum Tax (AMT) adjustments for 2011 ?"

Ans: I have answered it as yes.

Then it has asked me the following question:

Ques: "If you sold stock you received by exercising an incentive stock option (ISO), the sale is considered disqualified if you didn't meet the holding period requirements. Learn more

To make the adjustment for a disqualified ISO stock sale, enter the difference between the fair market value of the stock at the time you exercised the option and the amount you paid to exercise the option.

Enter the amount as a negative number."

Ans: -3124

Then the next question was -

Ques: "If you sold property in 2011 , and the property's basis was different for AMT, enter the difference between the regular basis and the AMT basis.

This might apply, for example, if you sold stock that you received through incentive stock options (ISOs). Example

If the AMT basis is greater than the regular basis, enter the difference as a negative number. Otherwise, enter the difference as a positive number.

Differences in basis for AMT "

Ans: I answered it as -3124

Then the next question was:
Quest: "If you have an AMT capital loss carryover from a prior year, and the amount is different from your regular capital loss carryover, enter the difference as your adjustment. Learn more

If your AMT capital loss carryover is higher than your regular carryover, enter the amount as a negative number.

AMT capital loss carryover adjustment"

Ans: I have kept this blank.

Next questions was :
Q. Any other AMT adjustments
A: Left everything blank.

Then there is a question about:

AMT Capital Gain Adjustment:
Unadjusted Amt Adjusted Amt.
Net Capital Gain $$$DIV AMT. ????

In this page, there are detail instructions to calculate this amount. Here are the instructions:

/**
AMT Capital-Gain Adjustments

You'll need to enter an Alternative Minimum Tax (AMT) capital-gain adjustment if any of these applies:
You sold a capital asset with a different basis for AMT and regular tax purposes. Ex: Stock received on exercising incentive stock options
Your AMT capital-loss carryover is different than your regular capital-loss carryover.
You have a capital gain AMT adjustment on a Schedule K-1 from a trust or estate.
You have qualified dividends or net capital gains but no regular taxable income (uncommon).
To enter your AMT capital-gain adjustments:
1. Only make these changes after you've told us about everything else on your return. This is the very last thing you should do on your federal return before filing it.
2. Print these instructions using the Print button at the top of this window.
3. Create an AMT copy of your return file:
◦ Save your original return by clicking File at the top left of the program and selecting Save.
◦ Click File at the top left of the program.
◦ Select Save As.
◦ Enter the file name for the new copy. We recommend adding "AMT" to the end of the name of your original return.
4. In the AMT copy of your return, go back to the place where you told us about the capital gains or losses having an AMT adjustment. Replace your original entries with their AMT counterparts.* See the examples below.
5. Click Forms at the top left of the program and select Open Forms.
6. Select Schedule D from the list and click Open Form.
7. Scroll down to line 18 and make a note of the value on that line.
8. Scroll down until you can see the Schedule D Tax Worksheet, located below line 22.
9. Make a note of the values on lines 10 and 13 of the worksheet.
10. Save the AMT copy of your return by clicking File at the top left of the program and Save.
11. Open your original return by clicking File at the top left of the program and then selecting the return near the bottom of the menu.
12. Return to the AMT Capital Gain Adjustment screen by clicking Next through the AMT topic.
13. Enter the amount you noted from line 13 of the Schedule D Tax Worksheet in the first row of the AMT Capital Gain Adjustment screen.
14. Enter the amount you noted from line 18 of Schedule D in the second row of the AMT Capital Gain Adjustment screen.
* If you're filing Form 2555 or Form 2555-EZ and you have a capital-gain excess, you might need to override certain calculated entries on the AMT copy of your return file. A capital-gain excess is the amount, if any, by which line 10 of your AMT Schedule D Tax Worksheet exceeds Form 6251, line 30. See the IRS Form 6251 instructions for lines 37, 38, and 39 under the heading "Forms 2555 and 2555-EZ" for details.
Examples
Incentive Stock Option Stock Sale
Joe exercised incentive stock options in 2005 and received 1,000 shares of stock. He included the difference between the exercise price, $5 per share, and the fair market value of the stock, $10 per share, in his 2005 AMT income on Form 6251. His AMT basis is $10 per share, for a total AMT basis of $10,000 in the 1,000 shares. His basis in the shares for regular tax purposes is $5,000.
After completing steps 1-3, Joe is ready for step 4. He clicks Take Me To in the AMT copy of his return and scrolls down to the topic Sale of Stocks, Bonds, Mutual Funds, and Investment Property (1099-B). He selects the topic and clicks Go To. In the list of sales, he clicks Edit next to the ISO shares he sold. He clicks Quick Entry and changes the cost basis from $5,000 to $10,000.
Joe continues with steps 5-14.
Capital-Loss Carryover
Hannah has a regular capital-loss carryover of $5,000 and an AMT capital-loss carryover of $10,000.
After completing steps 1-3, Hannah is ready for step 4. She clicks Take Me To in the AMT copy of her return and scrolls down to the topic Capital&ndashLoss Carryover. She selects the topic and clicks Go To. She clicks Next and changes her long&ndashterm carryover from $5,000 to $10,000.
Hannah continues with steps 5-14.
Sale of Depreciable Property
Harry bought a house in 1997 to use as a rental property. He used it as a rental property from 1997 until he sold it in 2011. For regular tax purposes, he depreciated the house over 27.5 years. However, for AMT purposes, he depreciated it over 40 years. Each year between 1997 and 2011, he reported the difference between AMT and regular depreciation as an adjustment on Form 6251.
After completing steps 1-3, Harry is ready for step 4. He clicks Take Me To in the AMT copy of his return and scrolls down to Business Assets Sold. He selects the topic and clicks Go To. He clicks Edit next to the Form 4797 copy on which he reported the sale of his rental house. He goes through the topic, changing the regular depreciation he entered for regular tax purposes to the total AMT depreciation for the rental property over the years he owned the home.
Harry continues with steps 5-14.
Schedule K-1 From an Estate or Trust
Beth received a 2011 Schedule K-1 from a trust of which she's a beneficiary. The K-1 reported net capital gains of $6,000 in box 4a and a -$1,000 AMT adjustment to the gains in box 12.
After completing steps 1-3, Beth is ready for step 4. She clicks Take Me To in the AMT copy of her return and scrolls down to Estates and Trusts (K-1). She selects the topic and clicks Go To. She clicks Edit next to the K-1 with the capital-gains adjustment. She clicks Next and replaces the $6,000 entry in box 4a with $5,000 because $6,000 - $1,000 is $5,000.
Beth continues with steps 5-14.
*/

I have followed the above instructions I got blank in line 18 of schedule D when I have worked on the AMT copy.

Is this correct calculation? Am I missing anything?

I would really appreciate if you please confirm the above.

Thanks in advance. I am sorry for writing such a long post.

Thanks.
DeepTax

Re: AMT Adjusted Amount in case of ISO
Posted by: deepTax, April 2, 2012 08:27AM
I have edited my post above.

Thanks.

Re: AMT Adjusted Amount in case of ISO
Posted by: Art, April 3, 2012 04:24AM
When did you exercise? And when did you dispose of the stock acquired via exercise?

If they were both in the same year, there is no ISO adjustment.

Re: AMT Adjusted Amount in case of ISO
Posted by: deepTax, April 3, 2012 04:47AM
Thanks for the prompt reply.

My stocks got exercised on 10/11/2011 and it got sold on 10/21/2011

This information I have found from the 1099B which I have received.

So you mean to say I won't have answer the following question as "yes" while filing taxes this year?

Ques: "Do you need to make any Alternative Minimum Tax (AMT) adjustments for 2011 ?"

Thanks in advance.


Re: AMT Adjusted Amount in case of ISO
Posted by: Art, April 3, 2012 04:53AM
When you make a disqualifying disposition of stock acquired via ISO exercise in the year of exercise, you do not report the Bargain Element amount on your Form 6251 [AMT], and you do not answer yes to the question about AMT adjustment.


If you still work for the employer who issued the ISOs and stock, he should be adding the Bargain Element amount to your W-2 form box 1, and there's no more work to be done.

Re: AMT Adjusted Amount in case of ISO
Posted by: deepTax, April 3, 2012 05:48AM
My employer didn't add anything in box1 in my W2.

Also I was told about the hold back amount for the first time.

If I don't say yes to the above question - my return will be filed correctly? I hope I won't get any audit or my return should not get rejected.

You are sure about this Bargain Element thing? I'm sorry - I'm little paranoid about it.

Thanks!

Re: AMT Adjusted Amount in case of ISO
Posted by: Art, April 4, 2012 04:14AM
Did you sell stock acquired through ISO exercise in the same year as your exercise?

If so,that particular disqualifying disposition should not generate any ISO speciic adjustment on Form 6251 (AMT calculation) and the Bargain Element should be added to an employee's Form W-2 box 1.

I can't add any more to what I have said.

Re: AMT Adjusted Amount in case of ISO
Posted by: deepTax, April 4, 2012 06:41AM
Thanks very much for replying again. I got it confirmed and you are absolutely correct. I won't have to do AMT.

Thanks once again.



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