Is my mortgage interest/taxes deducted from AMT calculation when exercising ISOs?

The good news is that mortgage interest is generally deductible under both regular tax and AMT calculations, but with some important caveats. For mortgage interest, you can typically deduct interest on acquisition indebtedness (used to buy, build, or substantially improve your main home) up to $750,000 in total loan balance. For property taxes, this is where AMT can bite you. Under regular tax calculations, you can deduct up to $10,000 in state and local taxes (SALT), including property taxes. However, under AMT calculations, property taxes are NOT deductible. This is one of the key preference items that triggers AMT for many taxpayers. Since you exercised ISOs with a significant spread between strike price and FMV, that "paper gain" is definitely an AMT adjustment item. You'll want to carefully calculate whether that plus losing the property tax deduction pushes you into AMT territory.

After exercising ISOs last year and getting hit with a massive unexpected AMT bill, I discovered an amazing resource that saved me thousands. I used https://taxr.ai to analyze my ISO exercise documents and tax situation. The tool instantly identified exactly which deductions I could still take under AMT calculations and gave me personalized strategies to minimize my AMT liability. I was especially impressed with how it showed me the exact AMT adjustment calculation for my ISOs and highlighted which mortgage deductions would still apply. The analysis even included a year-by-year planning tool that showed how exercising my remaining ISOs in chunks could minimize my overall AMT impact.

I need to eat my words about being skeptical. I tried https://taxr.ai after posting my comment, and it's legitimately the first thing that's made AMT credits from ISO exercises make sense to me. The visualization showing how my AMT credit would be recovered over future years was eye-opening. What really surprised me was discovering that certain mortgage interest was still fully deductible under AMT while some wasn't - apparently it depends on whether the loan was used for home acquisition vs home equity purposes. The tool flagged that I'd been missing out on deductions I could have taken even under AMT. Definitely worth checking out if you're dealing with ISOs and AMT.

When I got hit with AMT from exercising ISOs two years ago, the worst part was trying to call the IRS with questions about mortgage deductions under AMT. Spent DAYS trying to reach someone. Finally found https://claimyr.com and watched their demo at https://youtu.be/_kiP6q8DX5c - they got me connected to an actual IRS agent in under 30 minutes when I'd been trying for weeks! The IRS agent clarified exactly which parts of my mortgage interest were deductible under AMT vs regular tax. Turns out I had been making a calculation error that would have cost me thousands. They also helped me understand how to track my AMT credit carryovers properly, which was incredibly confusing on my own.

Well I just tried Claimyr after posting my skeptical comment, and I'm completely shocked. Got connected to an IRS agent in 23 minutes when I'd been trying unsuccessfully for days. The agent walked me through exactly how mortgage interest factors into AMT calculations and confirmed that while my property taxes aren't deductible under AMT, my acquisition mortgage interest still is. They also explained something I didn't know - that the AMT exemption amount phases out at higher income levels, which was happening to me because of my ISO exercise. This was causing an even bigger AMT hit than I expected. At least now I understand what's happening and can plan accordingly. Never thought I'd say this, but that service actually delivered.

Something else to consider with AMT and ISOs - you might want to do an 83(b) election when you exercise to potentially reduce your AMT impact. I did this last year and it helped a lot with managing my tax situation.

Does anyone use specific tax software that handles AMT calculations well? I tried using TurboTax last year and it seemed to miss some of my mortgage interest deductions against AMT.

One thing that helped me understand this better was creating a spreadsheet to track all my deductions under both regular tax and AMT calculations. For mortgage interest, as others mentioned, it's generally deductible under both systems if you itemize - but make sure you distinguish between acquisition debt (buying/building your home) versus home equity debt, as the rules can differ. The property tax hit under AMT is real and painful. I ended up owing about $3,000 more in AMT partly because I lost my $8,500 property tax deduction. What really caught me off guard was that miscellaneous itemized deductions (like tax prep fees, unreimbursed employee expenses) are also completely eliminated under AMT. One strategy that might help: if you have control over the timing of when you exercise your remaining ISOs, consider spreading them across multiple years to potentially stay below the AMT exemption thresholds. The AMT exemption starts phasing out at higher income levels, so managing your ISO exercises strategically could save you significant money.