ISO exercise and AMT paid - can I redeem my Alternative Minimum Tax payment?

Hey tax folks! I've got a situation that's driving me crazy. About 2 years ago I exercised some Incentive Stock Options (ISOs) at my company. The exercise price was $8 per share, but the market value at the time was around $21 per share. Because of this spread, I got hit with Alternative Minimum Tax (AMT) that tax year. The weird thing is - I was actually due a regular tax refund that year, but ended up paying this AMT instead. Now I'm wondering if I can somehow claim or recover that AMT payment on this year's taxes? I asked my accountant about it and got a really confusing answer. She said something about how I can't really claim it back, but because I paid AMT, the market price (not my exercise price) becomes my cost basis for the stock? I'm totally lost on this. So my questions are: Can I claim that AMT I paid back on this year's taxes? And what exactly is my cost basis for these shares now - the $8 I actually paid or the $21 market value that the AMT was calculated on? Any help would be super appreciated!

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18 comments

Dmitry Sokolov

•8M

What you're dealing with is the AMT credit, which is a common issue for people who exercise ISOs. When you exercise ISOs and hold the shares, the difference between your exercise price ($8) and fair market value ($21) is considered an AMT adjustment, causing you to pay AMT. The good news is that this extra tax you paid can potentially be recovered through the AMT credit in future years. You can claim this credit in years when your regular tax exceeds your AMT. It's reported on Form 8801 (Credit for Prior Year Minimum Tax). As for your cost basis question, your CPA is correct but explained it poorly. For regular tax purposes, your basis is what you actually paid ($8). But for AMT purposes, your basis is the higher amount ($21) that you were taxed on. This dual basis system means that when you eventually sell the shares, you'll calculate your gain differently for regular tax vs AMT purposes.

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Dmitry Sokolov

•8M

Yes, you should file Form 8801 with your tax return to claim the AMT credit from prior years. This credit is available to you every year until you use it all up, but you can only use it in years when your regular tax exceeds your AMT. When you sell the shares, you'll calculate two different gains. For regular tax purposes, your gain will be the selling price minus $8 (potentially larger gain). For AMT purposes, your gain will be the selling price minus $21 (smaller gain). This smaller AMT gain helps offset the higher tax you already paid when you exercised. The net effect is that over time, the tax system balances out so you're not double-taxed on the same income.

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Ava Martinez

•8M

Hey there! I went through almost the exact same situation last year with my startup ISOs and it was so confusing. After struggling to make sense of the AMT mess, I found this online tool called taxr.ai (https://taxr.ai) that totally saved me. It analyzed my ISO exercise documentation and explained exactly how my AMT credit worked. The tool showed me how to track my AMT credit carryforward and even gave me projections on when I could recover it based on my income. It also explained the whole dual basis thing in plain English - which was way clearer than what my tax guy told me.

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Ava Martinez

•8M

It doesn't directly integrate with TurboTax, but it gives you detailed reports you can use while preparing your return. It shows the exact numbers to enter and which forms you need to complete. I found this actually helped me understand what I was doing rather than just blindly entering numbers. As for state AMT rules, it actually does handle those differences. I'm in California too, and it specifically pointed out that California doesn't allow AMT credit carryforwards the same way federal does. It gave me separate guidance for my state return which saved me from making a costly mistake.

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Miguel Ramos

•8M

Just wanted to update after using taxr.ai that user Profile 5 recommended. It was exactly what I needed! I uploaded my ISO exercise documentation from 2022 and the tool immediately showed me I had about $14,000 in AMT credits I could potentially recover. The dual basis explanation finally made sense to me - I had been completely confused about how to track this properly. The tool also showed me exactly where to enter everything on Form 8801 and gave me a projection of how many years it would take to recover my credits based on my income pattern. Would have paid my accountant hundreds for this analysis!

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Zainab Omar

•8M

For anyone dealing with AMT credits or really any complex IRS issue, getting actual help from the IRS is a nightmare. I spent 4+ hours on hold trying to get clarification on my AMT credit situation. After three failed attempts, I tried using Claimyr (https://claimyr.com) and it was a game-changer. They got me connected to an actual IRS agent in about 20 minutes. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c The IRS agent I spoke with was able to look up my account and confirm my available AMT credit carryforward, which gave me confidence I was filing correctly. Much better than guessing or relying solely on what my software calculated.

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Zainab Omar

•8M

They use a system that navigates the IRS phone tree and holds your place in line. When they're about to connect with an agent, you get a call to join the conversation. It's not that they have a special connection to the IRS - they just have technology that handles the hold time so you don't have to sit there for hours. You definitely could keep calling yourself, but after trying for several days and spending hours on hold each time, paying a small fee to avoid that frustration was absolutely worth it to me. The hold times are absolutely ridiculous right now - the IRS itself admits they're only answering a fraction of calls.

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QuantumQuasar

•8M

I need to apologize and correct myself. After my skeptical comment about Claimyr, I decided to try it myself since I had been struggling with a similar AMT credit issue that I couldn't resolve. I was honestly shocked when they called me back in about 35 minutes (they estimated 45-60). I got connected with an IRS representative who pulled up my account and confirmed I had a $9,300 AMT credit carryforward from my ISO exercise in 2022. They explained exactly how to claim it on my taxes this year. Definitely eating my words on this one. Would have saved me weeks of stress if I'd tried this sooner instead of repeatedly calling and getting nowhere.

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Yara Sayegh

•8M

Just a heads up on the AMT credit recovery strategy - if your income fluctuates year to year, you might want to time when you claim these credits. In years when your income is higher, your regular tax is more likely to exceed your AMT, allowing you to recover more of those credits. I've been carrying forward AMT credits from ISOs for 3 years now and have recovered about 70% by being strategic about timing. Don't forget Form 8801 needs to be filed every year until your credits are used up, even in years when you don't recover any portion of them.

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Yara Sayegh

•8M

At $110k, you'll likely recover some of your credits, but it depends on your deductions, filing status, and other factors. If you're single with standard deduction, you'd probably begin to recover credits at that income level. Generally, I've found that married couples often need $150k+ combined income before recovering significant AMT credits, while singles can start seeing benefits around $90-100k. Consider consulting with a tax pro for a year-by-year projection based on your specific situation.

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