ISO Exercised and Held in 2021 (Do I need to delete "ISO Purchase Summary" in 2022 tax return?)

[w15]

Hello,

I have exercised and held ISOs in 2021. I have reported them on my 2021 tax return and paid AMT. Now, for 2022 the entry is still there in the "ISO Purchase Summary".  So, do I need to delete this entry or do I keep it there until I sell the corresponding ISOs? This also creates a Exercise Stock Options Worksheet in the forms section.

[DavidD66 · Accepted solution]

You should leave the entry there until you sell some or all of the shares from exercising the ISOs.    It will make reporting the sale much easier, from an AMT standpoint.

[w15]

Ok. Thank you. I was worried that it might be messing something up.

I am getting the AMT that I paid in 2021 back as a tax credit for 2022. Is this correct?

I thought that I would only get AMT credit back when I sell the ISOs.

[HopeS]

Yes, AMT credits earned in one year can be used to lower your tax bill in later tax years.  

If you buy and hold, you will report the bargain element as income for Alternative Minimum Tax purposes.

• Report this amount on Form 6251: Alternative Minimum Tax for the year you exercise the ISOs.
• When you sell the stock in a later year, you must report another adjustment on your Form 6251 for the year of sale.

Unused AMT credits

In the year that you exercise an Incentive Stock Option, the difference between the market value of the stock on the exercise date and the exercise price counts as income under the AMT rules, which can trigger an AMT liability. However, you will also generally earn an AMT credit in that year.

You can use the credit to lower your tax bill in later years. However, there are limitations on when you can use an AMT credit. In some cases, AMT credits cannot be used for several years. Fortunately, a taxpayer-friendly change in 2008 allows individuals with unused AMT credits that are over three years old (so-called long-term unused AMT credits) to cash them in.

• For the 2022 tax year, long-term unused AMT credits are those that were earned in pre-2007 years.
• Taxpayers with long-term unused credits from pre-2007 years can generally collect at least half their credit amounts by filing their 2022 returns, and the remainder can be collected by filing their 2022 returns.
• To figure out the amount of unused AMT credits that can be collected under this rule, fill out Form 8801 (Credit for Prior Year Minimum Tax).

Also, review the link below for more detailed information:

Incentive Stock Options

@w15 

[cocoa24]

If all shares belonged to an entry are sold, do I have to delete the entry? Does it trigger AMT adjustment based on actual gain/loss?

Thanks!

[HopeS]

The entry in your screenshot represents ISO Purchase Summary. If the shares were not sold you should keep the entry. 

This amount should be reported as the gross amount on the 2022 Form 1099-B that you'll receive from the broker that handled the sale. 

You will need the Premier version of TurboTax.  There is no same-day sale that I can find however you would report it as a stock sale with the same date for purchase and sale.

To report Sale of ISO:

• In the search bar, enter stock sales and click the Jump to a link
• Under Choose the type of investment you sold, choose ISO
• You will need to adjust your cost basis to include the ISO amount in your W-2.

When you exercise Incentive Stock Options, you buy the stock at a pre-established price, which could be well below actual market value. The advantage of an ISO is you do not have to report income when you receive a stock option grant or when you exercise that option.

You report the taxable income only when you sell the stock. And, depending on how long you own the stock, that income could be taxed at capital gain rates ranging from 0% to 23.8% (for sales in 2022)—typically a lot lower than your regular income tax rate.

• With ISOs, your taxes depend on the dates of the transactions (that is, when you exercise the options to buy the stock and when you sell the stock).
• The price break between the grant price you pay and the fair market value on the day you exercise the options to buy the stock is known as the bargain element.
• There is a catch with Incentive Stock Options, however: you do have to report that bargain element as taxable compensation for Alternative Minimum Tax (AMT) purposes in the year you exercise the options (unless you sell the stock in the same year). We'll explain more about the AMT later.

Please review the information provided in the link below for more information

Incentive Stock Option

@cocoa24 

[w15]

If I sold all of the ISO shares during the 2023 Tax year (previously included in the "ISO Purchase Summary") , do I delete the "ISO Purchase Summary" entry in the 2023 Tax return? Or only delete it next year?

[DaveF1006 · Accepted solution]

Yes. If you sold all remaining shares, it is safe to delete the summary.