Why do I owe AMT after exercising options I did not sell?

The bargain element on an incentive stock option is an AMT preference even without a sale. If the share price then falls you can owe tax on value you never received, which is the well-known trap.

Do I get the AMT back?

AMT paid on timing differences, including ISO exercises, generates a credit against regular tax in later years. It is a deferral rather than a permanent extra in that case.

Taxincome taxUnited States only

Alternative Minimum Tax Calculator

Alternative minimum tax. AMT is the excess of a parallel calculation over your regular tax, and the exercise of incentive stock options is the single most common trigger.

Also called: alternative minimum tax, iso amt calculator.

Additional AMT due

$40,310.00

$40,310.00 of AMT above your regular tax of 68,000. Alternative minimum taxable income is $492,000.00, on which tentative minimum tax is $108,310.00. The ISO bargain element is included even though nothing was sold, which is the most common cause of an unexpected AMT bill.

Alternative minimum taxable income

$492,000.00

Exemption after phase-out

$88,100.00

Tentative minimum tax

$108,310.00

Exemption lost to the phase-out

$0.00

AMT credit carried forward

$40,310.00

On incentive stock options

The ISO bargain element is included even though nothing was sold, which is the most common cause of an unexpected AMT bill.

How this is calculated

Computed from the published rates for the tax year you selected, which is not necessarily the current year. A calculation, not tax advice, and it does not know anything about your circumstances beyond the figures entered.

Method and background

This is what the calculation gives for the numbers you entered. It is an estimate, not advice, and it knows nothing about your situation beyond those numbers. Rules for United States change on a published schedule; the effective date is shown on every rule-based tool.

How this is calculated

AMT recomputes taxable income without certain deductions and preferences, applies a large exemption that itself phases out at higher incomes, and taxes the result at two flat rates. You pay the excess over your regular tax, not the whole thing. The bargain element on incentive stock options is included even though nothing was sold, which is what produces the classic case of a large AMT bill on shares that later fell. AMT paid on timing differences generates a credit usable in later years.

AMT is the excess of the tentative minimum tax over regular tax, not a separate tax on top

TMT: Tentative minimum tax

Worked examples

Each of these is asserted on every build. If a change to the engine ever moved one of these answers, the build would fail before the page could print it.

an ISO exercise triggering AMT

Regular taxable income: $320,000.00
Regular tax: $68,000.00
State and local taxes added back: $22,000.00
ISO bargain element exercised: $150,000.00
Other preference items: $0.00
AMT exemption: $88,100.00
Exemption phase-out begins at: $626,350.00
AMT rate, lower band: 26%
AMT rate, upper band: 28%
AMT bracket threshold: $239,100.00

Additional AMT due$40,310.00

239,100 at 26% plus 164,800 at 28%, on AMTI less the exemption

Open this example

no preferences means no AMT

Regular taxable income: $320,000.00
Regular tax: $68,000.00
State and local taxes added back: $0.00
ISO bargain element exercised: $0.00
Other preference items: $0.00
AMT exemption: $88,100.00
Exemption phase-out begins at: $626,350.00
AMT rate, lower band: 26%
AMT rate, upper band: 28%
AMT bracket threshold: $239,100.00

Additional AMT due$0.00

boundary: regular tax exceeds the tentative minimum

Open this example

Method and limits

What it assumes

A simplified AMT calculation with the preference items entered.

What it deliberately does not model

The real AMT calculation has many more adjustment items than the four here.
The exemption phases out at twenty-five cents per dollar above the threshold, creating an effective rate above the stated ones.
This is an estimate, not tax advice, and an ISO exercise is worth professional review.

Formula version 1.0.0 · definition 1.0.0 · United States · Report a problem with this calculator

Frequently asked questions

Why do I owe AMT after exercising options I did not sell?: The bargain element on an incentive stock option is an AMT preference even without a sale. If the share price then falls you can owe tax on value you never received, which is the well-known trap.
Do I get the AMT back?: AMT paid on timing differences, including ISO exercises, generates a credit against regular tax in later years. It is a deferral rather than a permanent extra in that case.