Is section 1202 relevant to ISO exercise gains?
January 9, 2000
Subject: Calculating AMTI
Date: 20 Dec 1999
I have been reading on the web, trying to learn about AMTI. I have learned that AMTI can be complicated and financially frightening. A windfall for tax advisors!
At any rate I found the following link which cross-referenced your FAQ’s but raised some new questions also:
Although this report was written in 1998 – I guess the numbers in terms of the AMTI exemptions #’s have not changed. (45K for married filing jointly, 33.5K for singles…)
The report also indicates thresholds with phase-outs of these exemptions which seem important (above 150K for mfj, 112K for singles) – and which I did not see mentioned in your FAQ’s.
In the present law section, the report also describes the preference items which trigger AMTI – one of them being:
(5) Forty-two percent of the amount excluded from income under section 1202 (relating to gains on the sale of certain small business stock).
Is section 1202 relevant to ISO exercise gains? I’d like to confirm whether the entire ISO exercise gain is included as potential AMTI or just 42% of the gain?
ISO exercise GAIN = (FMV – ISO exercise price) X # of shares
Thanks for providing this helpful website. I sincerely hope your business flourishes as a result.
Date: 9 Jan 2000
The Section 1202 percentage does not apply to ISO preference.
The entire spread for ISOs is subject to alternative minimum tax provided the shares are not sold before the end of the year of exercise.