Do the wash sale rules apply to the alternative minimum tax for employee stock options?

August 16, 1999

Subject:   Wash sale rule apply to AMT?
Date:   Wed, 2 Aug 2000
From:   Brian

Do the wash sale rules apply to the alternative minimum tax? Here’s why I’m wondering…

Can I exercise and hold new shares at $50/ share gain at the same time I sell last years shares for AMT loss of $100/share? And then can I buy back shares on the open market if I choose at $XX (or whatever market is) without concern for the wash sale rules. For regular tax purposes there is no loss, but for AMT there is. Thus my question; are there wash sale rules for purposes of AMT?

Thank you in advance for your anticipated response.



Hello Brian,

You have raised a very interesting question.

The IRS generally applies most of the regular tax rules in an AMT context. In other words, the same rules apply unless different rules are specified.

Therefore, I believe the wash sale rules do apply for AMT.

You can avoid the wash sale rules by waiting more than 30 days after selling the stock to replace it.

Are you confident this is a good investment for you? What are your alternatives?

Good luck!

Mike Gray

P.S. The IRS has state in proposed regulations that the wash sale rules do apply. An early disposition of ISO stock may be blown by buying replacement shares unless more than 30 days have passed after the sales.

For more information about incentive stock options, request our free report, Incentive Stock Options – Executive Tax and Financial Planning Strategies.

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