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Level 1
posted Mar 29, 2023 10:23:57 AM

How to calculate capital gains/losses for exercising ISO, Paying AMT, and selling the following year

Hello

 

I'm looking to know how to calculate adjusted capital gains/losses for the following situation:
  1. I exercised ISOs early 2021 (just before my company went public) and held
  2. In my 2021 taxes, I paid AMT taxes on the unrealized capital gains from exercising the ISOs
  3. I sold some of these stock in 2022 as long-term stocks for less than the value of the stock at the time I exercised.
Filing taxes now, but the cost basis reported for the sales of the stock is at my strike price, and not adjusted for the tax. So it looks like I'm paying tax again. Is this just covered by AMT credit over time, or do I also need to do an adjustment for capital gains/losses?

Example (not real numbers - just for reference; also indicating that I'm selling all my ISOs for simplicity in this example):
  • In 2017 I was granted 100 ISO options.
  • Early 2021, I exercised all 100 stocks with a strike price of $2 and a values of $102. That gives me a $10,000 liability.
    • For my 2021 taxes, I paid $2,000 in taxes for the unrealized gains, which put me over my AMT. This was filled out in Form 6251 field i.
  • In 2022, I sold all 100 shares at a value of $57 as long term (was more than 1 year since exercising). This is selling at $55 greater than my original strike price, but $45 less than the price I exercised the stock at
    • Filing my 2022 taxes, my 1099 shows me that I sold 100 shares at $57, but with a cost basis of $2. This is showing that my tax liability is $5,500, and I am asked to pay $1,100
    • I already paid taxes on the unrealized gains in the previous year. When you get to the page in TurboTax, it doesn't help me walk through any steps or calculations on how to solve this - simply has two boxes for "short-term capital gain/losses adjustment" and one for "long term". How do I calculate this?

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1 Best answer
Expert Alumni
Mar 29, 2023 4:03:28 PM

No.  You do not adjust the cost basis for your regular tax.  The cost basis for your regular tax (using your example) is $2.  You have a regular tax gain of $55 per share.  Your AMT cost basis is $102, and you have an AMT loss of $45 per share.  You asked "Is this just covered by AMT credit over time, or do I also need to do an adjustment for capital gains/losses?"  The answer is it covered by AMT credit over time.  

3 Replies
Expert Alumni
Mar 29, 2023 11:51:43 AM

1. Make an adjustment. Your exercise price is going to be your cost basis since the sale is a qualifying disposition on your long term stock.

2.The adjustment for the cost basis needs to be made to both the stock and the AMT.

 

 Here is more reading to truly explain and help you.

Level 1
Mar 29, 2023 1:51:37 PM

So I need to adjust the cost basis on my AMT AND my regular tax capital gain to be the purchase price?

 

In that example, the new cost basis will be $102, leaving my capital gains to be -$55/share (or -$4,500 total), and this is reflected on both my AMT and my regular taxes, or only used for my AMT calculation?

Expert Alumni
Mar 29, 2023 4:03:28 PM

No.  You do not adjust the cost basis for your regular tax.  The cost basis for your regular tax (using your example) is $2.  You have a regular tax gain of $55 per share.  Your AMT cost basis is $102, and you have an AMT loss of $45 per share.  You asked "Is this just covered by AMT credit over time, or do I also need to do an adjustment for capital gains/losses?"  The answer is it covered by AMT credit over time.