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Subject:   Exercised Stock Options
Date:   Wed, 11 Jul 2001
From:   Michelle

Hi Mike,

I have excercised 2,000 of my 5,000 options that I have with my company. They were granted to me at $XX/share and the day I exercised our stock was at $XXX. I realize I will have to pay AMT on the $XX,000 difference in price. I plan on holding them for a year in order to claim a long term capital gain. Here's where it gets tricky. I'm getting married in September and my husband to be has $X in long term capital loss and another $X in short term. Will this capital loss offset my AMT??

Also, what is the best way to take advantage of the capital loss with my remaining shares??

Sorry if this sounds confusing.

Thanks,
Michelle

Answer

Date:   Wed, 25 Jul 2001

Hello Michelle,

Your fiance’s capital loss carryover will not reduce your AMT adjustment from exercising your ISOs.

If you keep the stock to meet the holding period requirements, the capital loss carryover may actually make it hard for you to recover your AMT credit, because the capital gain from the stock will be eliminated by the capital loss carryover and the difference between regular tax and the tentative alternative minimum tax for the year of sale will be eliminated.

It may be to your advantage if you can generate capital gains to use the loss before selling your ISO shares.

That’s as far as I can go for a FAQ.

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.