Let's assume it's 1000 shares with a strike price of $11, value during exercise of
$15 and sell price of $20.
In 2017 you report the difference between exercise and strike price as AMT income. $4000 in this case.
In 2018 you report the difference between exercise and sell price as long term capital tax income ($9000) for regular tax AND you report the difference between sell price and exercise price as AMT long term capital gain ($5000)
This scenario often leads to double taxation of the difference between exercise and strike price: you pay AMT on it in the year you exercise and regular tax on it in the year you sell.
The IRS has mechanism to potentially compensate for that double taxation: AMT Credit. It's stupidly complicated and depends highly on your specific details, so you may or may not be able to recoup some of the AMT paid in 2017.
Most people in this situation will seek professional help.
Adding a quick overview on how this all works.
- Transactions can create taxable income
- There are three types of taxable income: compensation income, short term capital gain, long term capital gain. Tax treatment of those types is sometimes quite different on the state level than it is at the federal level.
- There are three types of transactions that are considered differently: exercise, selling in less then one a year (after exercising) and selling after more than a year.
Here is the taxable income that each combination generates
Exercise nothing Comp (ex-strike)
Sell < year Comp (ex-strike) Short TCG (sell-ex)
Short TCG (sell-ex)
Sell > year Long TCG (sell-strike) Long TCG (sell-ex)
That's actually the easy part. The tax calculation itself is a horrible convoluted mess with multi-year dependencies and gets even worse if you have significant state tax component in there.