Reply To: Donate mature ISO Shares

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Kaye Thomas

ISO shares can be donated without adverse tax consequences after they mature. The tax benefits of doing so may be disappointing, however. Donating the shares avoids capital gains tax, but (depending on individual circumstances) the AMT credit can reduce or eliminate that tax on a sale of the shares. This means the amount of tax avoided by donating the shares may be smaller than expected, or even zero.

Donating these shares doesn’t help recover AMT credit, so the benefit from doing so depends on whether there is unrecovered AMT credit, and the prospects for recovering it without selling the shares. If the owner has AMT credit that won’t be recovered without selling the shares, the special benefit that normally attaches to donations of appreciated assets will be realized only to the extent the shares appreciated further after exercise of the option.