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Subject:   ISO Question
Date:   Fri, 12 Apr 2002
From:   Ram

Hello,

I have a question on AMT Credit:

Suppose I exercise a good chunk of ISO at FMV greater than the Grant Price in year 2001, I would owe AMT of $XX,000. If I hold the stock for over a year (becomes qualifying disposition - more than 2 years from grant), and sell it in 2002, will I be able to recover all of the AMT paid in 2002?

Thanks in advance for answering my question.

Ram

Answer

Hello Ram,

To get the answer, we would have to make computations for you with all of the figures for your projected income tax returns. Since the maximum AMT rate is 28% and the maximum regular income tax rate is 20%, it's hard to recover all of the AMT credit when the stock is sold. When the value of the stock goes down after the date of exercise, it's even harder. If the stock maintains it value, the amounts are fairly small and you have a lot of other ordinary income, it's possible to recover all of the credit.

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.