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From:   Anonymous

My grant price was $19 in Oct. 1996. I exercised in Dec. 1997 at $71 so I paid $52/share as a positive AMT adjustment on Line 10 of Form 6251 in 1997. I sold the shares at $58 in May 1998 so it is a disqualifying disposition because I did not hold the shares for one year from exercise or 2 years from grant.

The gain of $39 ($58 - $19) will be reported as ordinary income on my W-2 because of the disqualifying disposition. What exactly is my "negative adjustment" per share for AMT purposes for Line 9 of Form 6251? Would it be $52 ($71 exercise price - $19 grant price) PLUS $13 AMT loss ($58 selling price - $71 exercise price)= $65/share?

Answer

Your AMT basis adjustment at line 9 of Form 6251 will be -$52 per share (fair market value at exercise of $71 - option price of $19.)

Since the starting point for computing the alternative minimum taxable income is regular taxable income, the net loss reported for AMT will be $39 (in regular income) -$52 (AMT basis adjustment) = -$13.

Although you have ordinary income for regular tax reporting, you have a capital loss, which may be subject to the $3,000 per year limit, for AMT reporting.

Good luck!

Mike Gray

For more information about incentive stock options, request our free report, Incentive Stock Options - Executive Tax and Financial Planning Strategies.

IRS Circular 230 Disclosure: As required by U.S. Treasury Regulations, you are hereby advised that any written tax advice contained in this answer was not written or intended to be used (and cannot be used) by any taxpayer for the purpose of avoiding penalties that may be imposed under the U.S. Internal Revenue Code.