AMT and Equity Compensation
Alternative minimum tax, nonqualified stock options, incentive stock options and other forms of equity compensation.
Worthless stock from exercised ISOs and the AMT
Posted by: rtruely, February 3, 2015 11:07PM
I've read the Fairmark literature on dual-basis assets and I'd like to check that I understand it. I'd like to make sure I am figuring the negative adjustment to AMT income correctly for my worthless stock.

Back in 2012 I exercised some ISOs in a privately held company (30K shares with a strike price of $0.12 and a FMV at the time of $0.52). As a result I recorded the $12K difference between the FMV and the strike price on my AMT and paid the AMT in that year.

In 2013 I held the underlying stock, filed form 8801 and paid AMT as I typically have to do.

In 2014 the company failed and the stock became worthless. I know that on my 2014 schedule D I will record a long term $3.6K capital loss. I have some offsetting gains so I'll be able to take this entire loss in tax year 2014.

Based on the AMT basis for this stock, I think I now have a -$12K adjustment for my AMT.

For my 2014 AMT is it correct that my negative adjustment to income is capped at -$3K per year? If so then I have to take my -$12K adjustment over the next 4 years.

I have other regular long term capital gains and I'm not sure whether I can use those to allow me have a larger negative adjustment than -$3K in my 2014 AMT tax.

Thanks - Richard

Re: Worthless stock from exercised ISOs and the AMT
Posted by: triad, February 4, 2015 05:31AM
1. AMT is limited to $3000 loss per year until used up.
2. Remember that the schedule D under AMT is invisible, so you will still be doing an adjustment on the 6251 between the amount on the regular schedule D and the AMT version. Hint, do a paper version so you can keep track.

Re: Worthless stock from exercised ISOs and the AMT
Posted by: Kaye Thomas, February 9, 2015 02:22PM
It's often said that the AMT capital loss adjustment is limited to $3,000 per year, but this is based on the implicit assumption that you have no capital gains to offset. The actual rule is that you make the full adjustment ($12,000 in this case) and prepare the AMT version of Schedule D the same as if you were preparing one for the regular income tax. This means that if you have $9,000 or more in overall net capital gain for the year you'll get the full benefit of the $12,000 adjustment in that year. And if, for example, you had $5,000 in overall net capital gain for the year, you would use $8,000 of the adjustment (offsetting the $5,000 gain and taking an additional $3,000 that is the limit for capital loss in excess of capital gain) and carry the remaining $4,000 of AMT capital loss to the next year, when it will be available subject to the same rule.

Kaye Thomas
Fairmark.com

Re: Worthless stock from exercised ISOs and the AMT
Posted by: rtruely, February 9, 2015 07:34PM
Kaye - Thanks. That clarifies the situation.



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