Suppose I exercise 10k stock options for $1/share, and fair-market value is $2/share.

Normally, taxes are deferred until when I sell them. And when I sell, the basis for capital gains is $1/share.

But suppose the exercise causes me to pay AMT instead. AMT considers the $1 -> $2 to be taxable income.

When I pay for the exercise this year with AMT, what is the basis for my capital gains in the future? Do I pay for the $1 -> $2 increase twice? Are there any other ways that AMT affects future tax years?

2 Answers 2


You don't pay taxes on the discount ($1->$2) twice. You actually have a separate cost basis for your shares in the normal tax system versus AMT. Google 'AMT cost basis' and you'll see examples like this one.

As you point out, paying AMT due to exercising incentive stock options (ISOs) means you have a carry-forward credit that can be applied against the excess of your normal tax over AMT in future years. Particularly, when you sell your shares, due to having a higher AMT than normal tax basis, your AMT capital gain will be less than your normal tax capital gain, and thus you'll likely use up some or all of the credit that year.


After a bit more digging, this is what I believe the answer to be:

  1. Yes, you pay for the $1 -> $2 "income" twice.

  2. But, an AMT overage due to stock options (and some other reasons) can count as a non-refundable tax credit towards future non-AMT years. In that case, it could be as if AMT never happened.

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