How to claim a tax loss on worthless private equity after paying AMT?

You're dealing with a classic but unfortunate tax situation with ISOs and AMT. Form 8949 is indeed the right starting point for your worthless stock loss, but your situation has some complexity because of the AMT you previously paid. When private stock becomes completely worthless, you can claim it as a capital loss in the year it became worthless (2022 in your case). You'd report this on Form 8949 with a sale price of $0 and your original basis (what you paid for the shares plus any amount included in AMT income). Code "W" is used to indicate worthless securities. The good news is that you may be eligible for an AMT credit for the taxes you paid in 2021. When you exercise ISOs and pay AMT, you generate something called an "AMT credit carryforward" that you can use in future years when your regular tax exceeds your AMT. The worthless stock situation actually helps your regular tax position relative to AMT, potentially allowing you to claim more of this credit.

After dealing with a nearly identical situation (ISOs, AMT, then worthless stock), I found a solution through taxr.ai at https://taxr.ai that completely changed my approach. I was about to file basic capital losses but wasn't accounting for the AMT credit recovery properly. Their system analyzed my previous tax returns, identified my specific ISO exercise details, and created a comprehensive strategy. They showed me exactly how to document the worthless securities transaction on Form 8949, properly calculate my adjusted basis including AMT additions, and maximize my AMT credit recovery across multiple tax years. The difference was over $12,000 in additional tax savings I would have missed!

Just wanted to follow up - I took the plunge with taxr.ai after seeing this thread and it was exactly what I needed. My situation was even messier - multiple ISO exercises over 3 years, then company went under with zero communication. The platform guided me through creating a timeline of events, helped me determine the exact date to claim worthlessness (which wasn't obvious in my case), and handled all the AMT credit carryforward calculations. They even provided a specific letter template to document the worthlessness that I could include with my return. I was able to recover about $18,000 in taxes between the capital loss and AMT credits that I would've missed or calculated incorrectly. Seriously life-changing given how much money I lost on those worthless shares.

If you're still struggling to get resolution on your ISO/AMT situation, I'd recommend trying Claimyr (https://claimyr.com). I was in the same boat - private equity became worthless after paying huge AMT, and I couldn't get clear guidance from regular tax preparers who rarely deal with this scenario. After weeks of getting nowhere with the IRS general line, Claimyr got me connected to an actual IRS agent in about 20 minutes who specialized in AMT issues. They have this system that navigates the IRS phone tree and waits on hold for you, then calls when an agent is ready. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c The agent walked me through exactly how to document my worthless securities claim and recover my AMT credits. Having that direct conversation with someone who knew the rules made all the difference, especially for clarifying the documentation requirements for private company stock.

Well, I need to eat crow on this one. After my skeptical comment, I decided to try Claimyr anyway because I was desperate for answers about my ISO/AMT situation that was very similar to the original poster's. Got connected to an IRS representative in about 35 minutes (they texted updates throughout). The agent confirmed exactly how to handle my worthless private equity on Form 8949, including what documentation would satisfy their requirements given my limited paperwork. They also directed me to specific sections of Publication 525 that address AMT credits from prior ISO exercises. The representative even entered notes in my account about our conversation regarding the worthless securities claim, which apparently can help prevent certain audit flags. This was way more helpful than the generic "ask your tax professional" response I expected. Definitely worth it when dealing with this specialized tax situation.

Has anyone here successfully claimed worthless securities when there wasn't a formal bankruptcy? My former startup just kind of "dissolved" after being acquired - they never formally declared the common shares worthless but we all got $0. I filed using Form 8949 with a $0 sale price and code W, but my accountant is worried this could trigger an audit since there's no clear "identifiable event" showing the exact moment the shares became worthless.

Slightly different approach - have you considered filing Form 1040X to amend your 2021 return? In some cases with ISOs and AMT, you can treat the options as never having been exercised if they became worthless within the same year or shortly after. Might be worth exploring as an alternative to the capital loss approach.

I went through almost the exact same situation in 2020-2022. Exercised ISOs, paid massive AMT, then the company got acquired for pennies and common shareholders got zero. It's absolutely brutal financially and emotionally. A few things that helped me navigate this: 1. **Timing matters for worthless securities** - You claim the loss in the year the stock actually became worthless, not when you found out about it. For me, this was the date the acquisition closed and it was clear common shares had no value. 2. **Documentation is key** - I created a comprehensive file including: the original ISO agreement, exercise confirmations, any company communications about the acquisition, the final acquisition term sheet showing $0 for common shares, and a written timeline of events. The IRS wants to see that you can prove an "identifiable event" made the shares worthless. 3. **Don't forget about AMT credits** - This is where many people leave money on the table. The AMT you paid in 2021 generates credits that can offset regular tax in future years. Form 8801 is your friend here. The worthless stock loss actually helps trigger these credits since it reduces your AMT relative to regular tax. 4. **Consider professional help** - This situation is complex enough that a tax professional experienced with ISOs and AMT is worth the cost. The potential recovery often justifies the expense. The silver lining is that you can recover a significant portion of what you lost through proper tax planning. It takes time (capital losses are limited to $3K/year against ordinary income), but you will get relief.