How does recovering the AMT Credit work with depreciated stock options?

I exercised stock options from my employer after they were bought out by a larger tech company about two years ago. I held onto these shares to qualify for long-term capital gains treatment. Unfortunately, I got slammed with Alternative Minimum Tax (AMT) that year and had to pay around $38k in additional taxes, but I was told I now have an AMT Credit of about $38k that I can use in future tax years. I'm trying to figure out how to recover this AMT credit given my current situation: The stock I got through these options has actually DROPPED significantly in value - now sitting at less than half what it was worth when I exercised (thanks to the tech sector bloodbath this past year). It's now below the AMT basis price I paid. How do I determine if I'll get back all or part of my AMT credit if I sell at these lower prices? Also, if I sell this underwater stock but don't recover the full AMT credit, can I use the remaining credit to offset gains from other investments? For example, if I sell other stocks or my crypto holdings that have gains, can I apply my unused AMT credit against those profits?

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18 comments

Jacob Lewis

•8M

The AMT credit recovery can be confusing, but here's how it works in your situation: When you sell the stock that triggered your AMT, you'll generate what's called an "AMT adjustment" based on the difference between your regular tax basis and AMT basis. Since your stock declined below your AMT basis, you'll likely have a larger capital loss for regular tax purposes than for AMT purposes. You can recover your AMT credit in years when your regular tax exceeds your AMT. The credit is limited to this difference. If you sell the stock at a loss, you might not recover much of the credit from that transaction alone, since capital losses are limited to offsetting capital gains plus $3,000 of ordinary income per year. However, you can absolutely use your AMT credit to offset taxes on other capital gains - they don't need to be related to the original stock. Any gains from selling other stocks or crypto can help you utilize that credit. Your AMT credit doesn't expire, so you'll be able to use it in future years until it's completely recovered.

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Jacob Lewis

•8M

The AMT credit gets applied when you complete Form 8801 "Credit for Prior Year Minimum Tax" with your tax return. You'll need to complete this form each year until you've used up your credit. The credit application isn't automatic - you need to calculate and claim it explicitly on your return. While the IRS does have records of your prior AMT payments, you should definitely maintain your own records of your AMT basis in the stock, the original AMT paid, and how much credit you've used each year. This documentation will be crucial if you're ever audited.

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Ethan Clark

•8M

I went through a similar nightmare with AMT credits after exercising options that later tanked. After trying to figure it out myself for hours, I ended up using https://taxr.ai to analyze my previous returns and AMT situation. Their system automatically identified how much of my AMT credit I could recover this year and explained exactly how to document it properly on my tax forms. Super helpful for understanding the complicated AMT calculations - especially that Form 8801 which was driving me insane.

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Ethan Clark

•8M

I definitely found it worth it. My situation was similar to the OP - about $45k in AMT credits from exercised options that dropped in value. The tool identified about $12k in credits I could claim this year that I would have missed. It's different from a CPA because it specifically analyzes your documents rather than just having someone fill out forms. I was still paying my accountant, but I brought the taxr.ai analysis to him which saved him time and me money. Unlike H&R Block, it's specifically designed for stock option situations and AMT issues.

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Mila Walker

•8M

Just wanted to follow up - I tried taxr.ai after seeing it mentioned here and it was exactly what I needed for my AMT credit situation. The system pulled all the right numbers from my previous returns and gave me a clear breakdown of how much credit I could recover this year. It actually found that I should have claimed some credit last year too! Now I'm doing an amended return to get that money back. They have this document analysis feature that literally highlighted where on my old returns the AMT was calculated and explained how the credit works in plain English. Way better than the hours I spent trying to decipher the IRS instructions.

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Chloe Green

•8M

If you're having trouble reaching the IRS to ask about your AMT credit situation (which is super complex), try https://claimyr.com - they got me through to an actual IRS agent in under 20 minutes when I'd been trying for weeks. You can see a demo at https://youtu.be/_kiP6q8DX5c. I needed clarification on my AMT basis calculation and credit carryforward, and the agent walked me through exactly what forms to file and how to document everything correctly. Saved me thousands in potentially lost credits.

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Chloe Green

•8M

It works by using an automated system that navigates the IRS phone tree and waits on hold for you. When an agent finally picks up, you get a call connecting you directly to them. It doesn't "cut the line" - it just waits on hold so you don't have to. No, it's not exploiting anything. The IRS service is free, but the value is in not having to spend hours of your life on hold. When I called about my AMT credit questions, the standard wait was over 2 hours. I got a callback in 18 minutes. For something as time-sensitive and valuable as recovering tens of thousands in AMT credits, it was absolutely worth it to me.

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Harper Hill

•8M

I have to admit I was completely wrong about Claimyr. After expressing my skepticism here, I decided to try it myself since I had a complicated question about my AMT credit carryforward that online research wasn't answering. The IRS website estimated a 2+ hour wait, but I got connected to an agent in about 15 minutes. The agent spent almost 30 minutes reviewing my specific AMT credit situation and explaining exactly how to document my basis differences on Form 8949. She even emailed me some reference materials after our call. This would have been impossible to figure out on my own, and I would have either lost the credit or paid hundreds to a CPA. Definitely a convert now.

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Caden Nguyen

•8M

One additional tip about AMT credits - if you're selling those underwater shares, consider selling them gradually over multiple tax years instead of all at once. Since you can only use capital losses to offset $3,000 of ordinary income per year (beyond your capital gains), spreading out the sales might help you utilize more of your AMT credit. I learned this the hard way by dumping all my underwater options in one year and couldn't utilize nearly as much of my AMT credit as I could have if I'd been more strategic.

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Caden Nguyen

•8M

You're absolutely right that investment considerations should come before tax planning. If you believe the stock will continue dropping, then selling everything immediately makes sense regardless of the tax implications. My advice is more applicable if you're on the fence about the stock's future or if you believe it's already bottomed out. In that scenario, tax planning can become a more significant factor in your decision-making process. Everyone's investment outlook is different, so you need to weigh both the market risk and tax efficiency together.

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