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Three years ago (2020), I exercised a sizable amount of ISO Stock Options, which resulted in AMT in that year. Let's say the strike price was $50 and the FMV was $100.

Since then, the company went public, and sold a good amount in 2023, but the price I sold for was less than FMV I paid AMT on, say, $75. I've also met the long term capital gains requirement of ISO shares.

A couple questions:

  1. Will I still be subject to capital gains from selling the shares in 2023 even though I've already paid AMT (which is higher than long term cap gains)?

  2. Since I've sold the shares at less than the FMV when I exercised, is there any way to recoup the tax that I've already paid?

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  • Does this help? Especially the last part of the answer
    – littleadv
    Dec 30, 2023 at 23:56

1 Answer 1

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Your stock has a $50 cost basis in the regular tax system and a $100 basis in the AMT system. With the $75 proceeds, this means you have a capital gain in the regular tax system and a capital loss in the AMT system.

You should also have a Prior Year Minimum Tax Credit from 2020 when you paid AMT due to exercising ISOs. If you haven't paid AMT since then, this credit should have been slowly chipping away at the extra you paid in 2020. It is limited to how much higher your regular tax is in a given year than what your AMT would have been. The year you sell you'll often recoup the bulk of the credit.

It depends on your exact situation, but since your AMT will most likely be lower than your regular tax for 2023, unless you already used up your Prior Year Minimum Tax Credit, this should significantly reduce your overall tax bill. It's really difficult to say anything more definitive than that, but suffice it to say that the AMT you paid from exercising ISOs will most likely eventually be recouped, albeit without inflation.

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  • To add to this, the sale of the ISO shares creates a negative adjustment to AMT on line 2k of Form 6251, which helps to accelerate the recovery of the PY-MTC. Also relevant since there's an AMT loss: the negative adjustment is limited to capital gains + $3,000, with any excess carrying over to the following year.
    – Stan H
    Dec 31, 2023 at 18:40

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