Reply To: AMT credit and net minimum tax on exclusion items: gotcha?

Home Fairmark Forum Equity Compensation AMT credit and net minimum tax on exclusion items: gotcha? Reply To: AMT credit and net minimum tax on exclusion items: gotcha?

#3277
Kaye Thomas
Moderator

You aren’t alone. Many people who take a close look at those numbers ask similar questions.

To explain what’s going on I’ll make up some numbers for an example. Suppose that in year 1 (when you sold your ISO stock and partially recovered AMT credit) your overall tax situation was such that if you had not sold ISO stock, you would have owed $10,000 in AMT (in addition to owing regular income tax). Your sale of ISO stock produced a favorable adjustment large enough to permit you to recover $20,000 in AMT credit. Although your credit was $20,000, your benefit from the adjustment was $30,000, because you also eliminated $10,000 in AMT you would have paid. IRS forms take this into account, reducing your carryover by $30,000 rather than $20,000. It may appear that you’re being cheated out of $10,000 of AMT credit, but your actual tax benefit from taking the sale of shares into account was $30,000. The additional $10,000 benefit wasn’t visible on your tax return for year 1, but the Form 8801 calculation is designed to identify it so you don’t get double benefit from those favorable adjustments.