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With recent 2018 changes to AMT, I wanted to understand how much ISO options can I exercise without making a material difference in AMT

Scenario
Current income 200k
Claiming standard deduction for Married Filing Jointly (24k)
401k deduction (36k)

How much the total spread before there's a material difference between AMT and regular taxes? Given AMT is triggered by stock options would this be effectively be returned back in following years when ordinary taxes would be more than AMT?

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Around $32,600 of discount/spread in exercised ISOs would give you a roughly equivalent total tax between the regular and AMT systems.

With these numbers, under the regular tax system you'd pay $22,679 in federal income tax. Your tentative minimum tax (TMT) would be $22,672. If your ISO spread went up to $32,700, your TMT would go up to $22,698, and since it is larger than the regular tax, you'd pay the excess $19 of AMT.

I put together a spreadsheet to do this calculation (https://docs.google.com/spreadsheets/d/1m3Ss4yO46Z4Jno0nqQirSIcSw72ADfS-5EkKVudCYXs/edit?usp=sharing; note that it assumes your AMT income is <= $1,000,000 such that the AMT exemption is not phased out at all) but it can be a bit of a pain. You're probably better off putting data into TurboTax or similar software. I did this as well to confirm my numbers.

And yes, as you note, if you pay AMT due to exercising ISOs, in future years you can receive a credit for the extra tax you paid, limited to the excess of your regular tax versus TMT in that year. Unused credit carries forward into the future indefinitely.

  • If it's google sheets, do you mind making it publicly available. I would like to see how you did the calculations – Kris May 16 at 0:10
  • @Kris Added Google Sheets link to my answer. – Craig W May 16 at 2:03
  • Exactly what I needed! Thank you so much – Kris May 16 at 21:26

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