Submitted By: someone
Answered: November 25, 2019 10:16 pm

I exercised incentive stock options (ISOs) but can’t sell the stock to anyone other than through a company buyback next year. How do I handle this for purposes of the alternative minimum tax (AMT)?

The spread between the fair market value of the shares on the date of exercise and the amount paid for the shares is a tax preference item for purposes of the AMT in the calendar year in which ISOs are exercised, but only when the rights acquired become transferable or when they are no longer subject to a substantial risk of forfeiture (whether either condition applies in your case should be determined by asking the issuer). Even if your rights in the stock aren’t transferable and are subject to a substantial risk of forfeiture, you may elect to include in AMT income the excess of the stock’s fair market value over the exercise price upon the transfer to you of the shares acquired through exercise of the option. Taking this spread into account may mean your AMT is higher than your regular tax; you pay the higher amount. However, looking ahead, you may be able to recoup some of that tax through a minimum tax credit in the future.

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Tax Glossary

Rollover

A tax-free reinvestment of a distribution from a qualified retirement plan into an IRA or other qualified plan within 60 days.

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