Can I get a credit against my ordinary tax for the AMT?
August 20, 1999
Subject: Recapture of AMT
Date: Fri, 13 Aug 1999
The exercising of my ISOs will require me to pay AMT. I am trying to figure out if selling the stock this year and thus paying short term capital gains on the stock at 36% but eliminating AMT is beneficial to the strategy of waiting 12 months for the long term gain of 20% on the stock and paying the AMT. Can I get a credit against my ordinary tax for the AMT I pay this year on next year or future years’ returns?
Yes. If you exercise the option in this year, incurring an AMT, and sell the shares next year after the required holding period, you will be able to apply some of your AMT credit to reduce your tax next year. Since the federal AMT rate (in most cases) is 28% and the regular rate for long-term capital gains is 20%, you will only be able to apply about two-thirds of your AMT credit. The excess is carried over and may be reduced for various reasons.
Also, bear in mind that if the price of the stock goes down, you may not get as much benefit for the AMT credit. You could end up with an AMT capital loss, limited to $3,000.
I know this is complicated. That’s why people consult with us to understand in detail how these rules affect them.