Question

How to avoid double taxation on ISO stock as I already paid AMT on higher FMV than when it was sold?

Forum|Forum|5 years ago
March 31, 2021
1 reply
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2 years ago I exercised my ISO options and had to pay AMT on FMV on those shares. FMV was higher than when I sold those years (2 tears later). How to I report that as when I select option which says that stock was part of ISO stock, it shows my gain as difference between price at sale vs price of option but it doesn't take in consideration that I already paid taxes on price at exercise (bigger then selling price)

D

DavidD66

Basically, if you’ve paid AMT in the past, you may qualify for the Minimum Tax Credit. To figure out whether or not you qualify for it, you have to complete Form 8801 (Credit for Prior Year Minimum Tax).

When you exercised your ISOs and had to pay AMT, you generated a Minimum Tax Credit (MTC), which can be carried forward indefinitely until used up. You apply the credit you can use and carry the remainder forward by filing Form 8801 (Credit for Prior Year Minimum Tax). Under the current tax laws most people who don’t exercise ISOs don’t have to pay the AMT, but there will still probably be a way to use some of your MTC to reduce your taxes, even if you don’t owe any AMT. You’ll utilize most of your MTC the year you sell your shares.

You have two separate cost bases for your ISO shares:

Cost Basis #1 is your regular tax basis, which is the price you paid to exercise your Incentive Stock Options.

But Cost Basis #2 is the fair market value (or FMV) at the time you exercised. (The FMV is what was used to determine how much AMT you owed). And this was reported on Form 3921.

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