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Thanks for the post. Sorry for the inconvenience. AFAIK, there would be no problem if you reply more than once to a post as a way to provide more than one link, in a case where that would be helpful.
I’ve discovered there is some kind of glitch in our forum software, which may be why we’re seeing some unusual behavior. I’ve requested help from the forum for this software. Unfortunately, although this software has a good reputation and is used on many websites, it’s maintained by volunteers who do this in time they can spare from their main jobs.
I tried to identify the problem but couldn’t find anything. While I’m not sure, the problem may relate not so much to length of your post as including multiple links in the same post, which makes the built-in security get suspicious.
Selling a matching number of shares by the end of the year doesn’t avoid a wash sale. In the right circumstances, it may give you the same result as if a wash sale had not occurred, but you still have to report a wash sale and make the appropriate adjustment as to the shares you sold later.
The wash sale regulations have matching rules that generally require us to work chronologically when there are multiple batches that can be paired with a single sale. Unfortunately, in your example this would mean the shares that match are the 500 ISO shares you bought on 8/1 and 100 of the ISO shares you bought on 8/5. According to those regs, the wash sale adjustment (added basis) would apply to those shares, and you would have to sell those shares to get the resulting loss. Doing this by the end of the year would require you to forgo the potential tax benefit of holding ISO shares.
I think it’s best to follow whatever instructions you can get from the help resources provided by the company. Do a Google search for “etp mlp k1” and you’ll get to a page with a phone number for help and other resources.
The rules here are a little murky, but to the best of my knowledge the IRS has never taken the position that vesting of an option triggers the wash sale rule. As you say, exercise of the option would be a trigger.
I regret to say that for technical reasons, it was not possible to continue offering the older content.
Your understanding is correct. The rule pertains to options becoming exercisable and does not limit the value of shares that are exercised in a given year. Whoever provided the language you quoted stated the rule incorrectly. We explain the rule on this page:
Most people who post here check the box to get follow-up replies, so they would become aware of any corrections posted. However, if you’re concerned, let me know where the error occurred and we’ll get a message out to that individual.
Sorry for the inconvenience. There was nothing wrong with the site, but due to unclear instructions from our hosting company, our SSL certificate expired. The website was still safe, but the certificate proving it was safe fell out of date, and that produced the warning. As you see, we’ve installed a new certificate.May 2, 2019 at 8:10 pm in reply to: AMT credit and net minimum tax on exclusion items: gotcha? #3277
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.
It’s impossible to know exactly what’s going on without seeing your Form 8801, but for reasons that are not easily explained, your AMT credit carryover can legitimately decrease in a year you do not claim the credit. It has to do with the interaction of two different AMT calculations, one that applies only the exclusion rules, and one that applies the timing rules as well as the exclusion rules.
The theory behind these rules is that the lender had a right to receive a minimum amount of interest on the loan, and should be treated as is (1) the lender received that interest and (2) made a gift of the same amount to the borrower. You’re focusing on the consequences of part 2, the gift. It’s part 1 that creates the problem: the lender has to report imputed interest income.
If the loan is between natural persons (you aren’t borrowing from a business or a trust, for example) and the total amount borrowed is no more than $100,000, under a proposed reg, imputed interest is limited to the amount of the borrower’s investment income. The idea here is that the IRS doesn’t have to worry about these loans unless they’re being used to shift investment income from one person (usually someone in a high tax bracket) to someone else (usually in a lower one). So, if you and your spouse can get by with each borrowing no more than $100,000, and you have little or no investment income, you should be able to work this out.
The loan doesn’t have to be secured. There’s a requirement for a loan to be secured if you’re looking to claim an itemized deduction for interest paid on the loan, but that’s obviously not an issue here.
You don’t have a choice on treatment of a stock split. Basis is divided among all shares. Choosing to sell the added shares received in the split has no effect because all the share have the same basis.
The things that cause you to pay AMT are divided into two categories: exclusion items and other items. You get to claim AMT credit only if your AMT was caused by other items, which include depreciation adjustments and incentive stock options. If you haven’t had these types of adjustments, but were paying AMT because of a large itemized deduction for state and local taxes (an exclusion item), you aren’t eligible for AMT credit. And, by the way, if you are eligible, for example because you exercised an incentive stock option years ago, you should have been filing Form 8801 each year beginning with the year after you exercised the option.