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Date:   Tue, 5 Jun 2005
From:   Ed

Hi Michael,

If I want to hold the stock after exercising ISOs, should I sell some stock to recognize losses to offset the gain from the exercise? Is the $3,000 capital loss deduction allowed when computing the alternative minimum tax?

Regards,
Ed

Answer

Date:   Wed, 06 Jul 2005

Hello Ed,

Yes. Remember the additional income reported relating to the exercise of an ISO is ordinary income and not capital gain eligible for offset by capital losses. Capital losses are deductible when computing the regular tax and the AMT up to the amount of capital gains plus $3,000.

Good luck!

Mike Gray

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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.