how do i figure basis for stock options that i paid AMT on?

Question

i excercised some stock options a few years ago. my excercise price was very low (less than $1). however, the stock price was high at that point ($50), so i had to pay AMT based on $50.

the stock is now worth about $10. if i want to sell the stock, how do i figure out beforehand what the basis will be?

is the AMT just a simple adjustment to the excercise price, or do i have to look and see if some of that AMT was credited back in the intervening years?

Answer 1

very good question award

nice to see someone thinking

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you have to allocate the extra tax imposed by the AMT across all the causes of that extra ... and thus determine what portion of the AMT you paid was due to the options (as opposed to AMT due to excess itemized deductions, etc.).

this amount is added to the total exercise price paid for all the shares [plus any income taxes paid (another allocation) on the portion taxed as wages, if any was so taxed] and then the result is divided by the number of shares.

viola! basis per share.

Answer 2

AMT is one of those dual-basis issues. For normal purposes, your stock basis should be the original exercise price. However, for AMT purposes your basis is the $50 you spent.

You probably exercised too many stock options at one time, which is why you were subject to AMT. Next time you run into such a disparity of exercise price vs. market price, I would contact a accountant or tax lawyer to see how you can legally strategize and avoid AMT.

Answer 3

Plus, remember to do form 6251 and show the difference in gain/loss for AMT purposes (this will pull down your AMT income for the years, eg you added $10,000 in the year of exercise, you subtract $10,000 on the AMT form the year you sell--it's line 16).

Plus, have you already gotten your AMT credit back? (The year I paid AMT for ISOs, the difference was so small, I got the money back the following year.)