In the California State Tax Return 540 where do I enter the AMT cost basis adjustment for shares previously acquired from ISO?

[fastredcars]

In the California State Tax Return 540  where do I enter the AMT cost basis adjustment for shares sold that have Excess of AMT Income over Regular Tax income. 

In 2011 I exercised an ISO (Incentive Stock Option) and acquired shares in a company.

In the 2011 Tax Return (Federal and California) I reported and paid additional California State AMT Tax  due to the difference between the option strike price and FMV (Fair Market Value) of the shares at time of exercise. 

In 2019 I sold those shares and I need to report the AMT cost basis adjustment in the California State Tax Return 540.

I know how to do it for Federal Tax Return 1040. I use "Form 6251 - line k Disposition of property (difference between AMT and regular tax gain or loss)"

In the California State Tax Return 540 Form p(540) there is NO line for "Disposition of property (difference between AMT and regular tax gain or loss)"

In the California State Tax Return 540 Form p(540) where do I enter the AMT cost basis adjustment for shares previously acquired from ISO?

Thanks 

[DaveF1006]

I found this this link in the Turbo Tax pro-Series website that is germane to your situation. See if this helps.  Here is a summary of the link.

Line 9 – Adjusted gain or loss

You will have an entry on this line only if you reported a gain or loss on California Schedule D (540) or Schedule D-1, federal Schedule D, federal Form 4797, or federal Form 4684, Casualties and Theft, for income producing property that has a different basis for AMT than for regular tax. Generally, if you reported a gain or loss from the sale or exchange of mutual funds, stocks, or bonds, you will not have an entry on this line.

To figure the amount to enter on this line:

Step 1 – Refigure the adjusted basis of the asset sold. Take into account any AMT adjustments you made this year or in previous years for depreciation, incentive stock options, circulation expenditures, pollution control facilities, research and experimental expenditures, and mining costs.

Step 2 – Refigure your gain or loss using the adjusted basis from Step 1.

Step 3 – Figure the difference between the AMT gain or loss and the regular tax gain or loss and enter the result on line 9. Enter the difference as a negative amount if: the AMT gain is less than the regular tax gain; the AMT loss is more than the regular tax loss; or you have an AMT loss and a regular tax gain.

[gianola]

Hello,

Thank you for your reply that I read in great detail.

I went back to my 2019 TurboTax and I tried to follow your suggestions.

I selecte "STATE TAXES" then "California" then "Credit and Taxes" and finally under the "Taxes" group I selected "Alternative Minimum Tax" 

Once there I follow the menu options "Start AMT" then "

[gianola]

Hello,
[Sorry the previous submission was sent prematurely by mistake]

Thank you for your reply that I read in great detail.

I went back to 2019 TurboTax and I tried to follow your suggestions.

I selected "STATE TAXES" then "California" then "Credit and Taxes" and finally under the "Taxes" group I selected "Alternative Minimum Tax"

Once there on the "About California's Alternative Minimum Tax (AMT)" the page it clearly states:

+++++++++++++++++
AMT ensures that everyone pays a minimum amount of taxes every year, and doesn't allow for some common deductions
Select START AMT if you need to make any AMT-related adjustments including
- AMT net operating loss deduction
- Exercise or sale of incentive stock options (ISOs) <<< THIS IS MY CASE
- See Complet list [link]
+++++++++++++++++

Given that my situation is "Sale of incentive stock options (ISOs)" I select the button "Start AMT"
Then I skip the page to enter "AMT Net Operating Loss Deduction" and reach the page with "AMT Adjustments and Preferences"

However in this page there is NO ENTRY to adjust the AMT for the "Sale of incentive stock options (ISOs)"

I need to enter the adjustment for the "AMT vs Regular Tax" due to a "Disposition of property ISO shares (i.e. difference between AMT and regular tax gain or loss)"

Where do I enter this adjustemt?
The only options I have available are for
- Circulation expenditures
- Depletion
- Installment sales
- Intangible drilling costs
- Long-term contracts
- Loss limitations
- Mining costs
- Patron's adjustment
- Pollution control facilities
- Research and experimental
- Tax shelter farm activities
- Related Adjustment

Let me kno win either cases, If you know How to do it or not
Thank you very much.

Fastredcars

[gianola]

Hello

I read threads in TurboTax Community support where you explained and clarified ISO and AMT related issues.

I need your help regarding the 2019 sale of shares acquired by ISO years ago and related AMT adjustments for Federal (Form 6251) and California (Schedule P(540)) .

This is the adjustment for the "AMT vs Regular Tax" due to a Disposition of property like ISO share for which I reported and paid taxes differently between AMT and regular tax when I exercised the ISO in the past.

In 2019 I sold shares acquired in 2011from ISO. Using  2019 TurboTax Premier, I enter the sale Info selecting the special situation to enter the ISO info as part of the Interview  process.  

Specifically I select the following in reporting the sale:

• “Guide me step-by-step” then
• “I have sales from and Employee Stock Option Plan, including EESP, NQSO, ISO, RS and RSU” then
• “Incentive Stock Option Plan (ISO)” then
• “Sold Shares exercised in 2019 or prior year” then
• I enter the sale info

For the Federal  - 1040 Tax Return ALL WORKS OK.

The Excess of AMT Income over Regular Tax income is reported correctly on Form 6251 (Part 1, line k) as “Disposition of property (difference between AMT and regular tax gain or loss) “

After completing the Federal Tax Return I then focus on the State of California Tax Return

However I am having problems with the California State Tax Return. I need to have the same California AMT Adjustment but I am NOT able to see it or enter it.  

The State of California Tax Return should have a Schedule P generated where the AMT Adjustment is reported in line 9 “Adjusted gain or loss. See instructions . . . “.

But in my California Tax Return I DO NOT have any Schedule P generated by TurboTax based on the Federal Tax information (Form 6251 Part 1 line k). I was expecting TurboTax to automatically carry over this Federal AMT adjustment amounts to the State of California AMT Adjustments.

Given that the AMT Adjustment was NOT automatically generated for the State of California, I then run the State of California Tax Interview to make adjustments manually and this is my experience so far.

In 2019 TurboTax I follow these steps for the State  of California:

1) I selected "STATE TAXES" then "California" then "Credit and Taxes" and finally under the "Taxes" group I selected "Alternative Minimum Tax"

2) Once there on the "About California's Alternative Minimum Tax (AMT)" the page it clearly states:

-------

AMT ensures that everyone pays a minimum amount of taxes every year, and doesn't allow for some common deductions

Select START AMT if you need to make any AMT-related adjustments including

- AMT net operating loss deduction

- Exercise or sale of incentive stock options (ISOs) <<< THIS IS MY CASE

- See Complet list [link]

-------

3) Given that my situation is "Sale of incentive stock options (ISOs)" I select the button "Start AMT"

4) Then I skip the page to enter "AMT Net Operating Loss Deduction" and reach the page with "AMT Adjustments and Preferences"

However in this page there is NO ENTRY to adjust the AMT for the "Sale of incentive stock options (ISOs)"

The only options I have available are for

- Circulation expenditures

- Depletion

- Installment sales

- Intangible drilling costs

- Long-term contracts

- Loss limitations

- Mining costs

- Patron's adjustment

- Pollution control facilities

- Research and experimental

- Tax shelter farm activities

- Related Adjustment

I need to enter the adjustment for the "AMT vs Regular Tax" due to a "Disposition of property ISO shares" similar to Federal Tax information (Form 6251 Part 1 line k).

Where do I enter this adjustment in the State of California Tax Return?

I trust my explanation is clear. I really need your advice on this matter.  

Let me know in either case, If you know how to do it or not

Thank you very much.

Fastredcars

[TomYoung]

@gianola 

I just tried a test entry for the 2019 sale of stock acquired via an ISO some years prior to 2019 using a desktop version of TurboTax and I saw that the reversing adjustment properly carried over to California Schedule P(540). 

If you are using an online version I can't make a similar test.

One of the first things I might try here is to delete the trade entirely, and then re-enter it. 

[gianola]

Mr. TomYoung 

Thank you for the prompt reply !! It's appreciated. 

FYI I am using the TurboTax downloaded version running on my PC Windows.

I will try what you suggested " ... try here is to delete the trade entirely, and then re-enter it ..."  but it will take some time as I have several transaction to re-enter.

In the meantime, based on your experiment, can you share the following info:

1) I assume that, after you entered the 2019 sale of stock acquired via an ISO in the TurboTax Federal Interview, you DID NOT have to do any additional manual adjustment or data entry for the State of California Tax Return. Instead the Federal AMT adjustment amounts were automatically carried-over to the State of California AMT Adjustments. Is this correct? 

2) After you enter your test sale transaction, let for example say you see $5,400 as the Excess of AMT Income over Regular Tax income reported correctly on Federal Form 6251 Part 1, line k. Where do you see  the same $5,400 in the California State Tax Return? On Schedule P (540)  like 9 "Adjusted gain or loss." ? If not, where do you see this adjustment in the State of California Tax Return? 

Let me know 

Thank You very much in advance.

[TomYoung]

1)  That's correct.  It's working (for me) as designed.

2) You see the AMT capital gain and the capital gain for regular taxes on line 1 of the "Adjusted Gain or Loss Line 9 Smart Worksheet."  The adjustment for AMT shows on Line 7 of that same worksheet - "Recomputed adjusted gain or loss" -  and on Line 9 of Schedule P(540).

[amgracer]

Has this been resolved? I am having the EXACT same issue.

[TomYoung]

@amgracer 

Add-on poster @gianola  never came back to tell us if it ended up working, or not.

At some point she said she was using a desktop version of TurboTax, as am I, so I did a test sale of stock acquired via an ISO using the "guided" ISO interview, and I saw the AMT adjustment in the federal income tax return and I also saw that same adjustment flow through to the California income tax return.  I detailed where the numbers showed up in my reply above. 

I did my test using only one stock sale and, maybe, with multiple similar sales TurboTax goes sideways for some reason, but that's easy enough to test particularly if you're using a desktop version of TurboTax.  Try creating a new "test" file - you have to provide only minimal up-front "personal"info - and do a test for one sale, then look at your income tax return in Forms mode and see if the adjustment is there in the California income tax return.  If it is, do another test sale, then look again.  If the information's there correctly do as many test sales as you have in your "live" file, checking each time in Forms mode.

The only other thing I can think of - it seems like a remote possibility - is that maybe California Schedule P(540) really is there in your income tax return but isn't being shown by TurboTax for one reason or another.  You can make TurboTax show you the California Schedule P by simply typing in "Schedule P" after clicking on the "Open Form" icon after opening Forms mode.

Of course you could try contacting TurboTax directly and seeing if they can help.

I did a test sale of stock acquired via an ISO

[gianola]

Hello,

sorry for not having posted an update on my case. I am new at this ...

Here is what I did (it's lengthy but with all the details):

1) I confirm I am using 2019 TurboTax Download on Windows 7, and I apply all the updates. 

2) Following TomYoung suggestion I also did a test tax return by creating a brand new one with only one transation, i.e. the sale of ISO. Like TomYoung I did a test sale of stock acquired via an ISO using the "guided" ISO interview, and I saw the AMT adjustment in the federal income tax return and I also saw that same adjustment flow through to the California income tax return. In this test case it worked !!  IMPORTANT: I then reviewd the California Schedule P(540) Form in view "Form" mode (not "Step-by-Step"), located the section "Adjusted Gain Loss Line 9 Smart Worksheet" and took a screenshot (SC1) of the adjustment as reported correctly in this test (more later).  

3) Then I went back to my "real" tax return and tested in this way. I removed all the sale transaction related to the ISO shares (but I kept all other sources of income), saved as a new tax return, then re-entered all sales transaction related to the ISO shares one by one, saving after each data entry. For each transaction I checked both the Federal and California tax return: in the Federal tax return the adjustment was correctly computed and reported WHILE in the California tax retur there was NO adjustment flow through. NONE !! 

4) As the last resort I did the following. After having entered all all sales transaction related to the ISO shares I reviewd the Federal tax return, verified all data was correct compared with my personal records. The then saved the details ($ amount) of the adjustment, went into the California tax return located the California Schedule P(540) Form, selected view "Form" mode (not "Step-by-Step"), located the section "Adjusted Gain Loss Line 9 Smart Worksheet" and used the TurboTax Override option to enter my adjustment data manually in line 1, 7 and 9. I entered thsi data followin the same adjustments I learned in step 2) above when I took the screenshot (SC1) on how the adjustment were correctly transferred from Federal to California. AFTER completing this manual override data entry I checked my Californa AMT tax and my Total tax and there was NO difference. In other words, in my case with all the rest of my income, expenses and other situations the California AMT adjustment DID NOT change my tax liability.

5) Therefore based on the above 4) I decided to IGNORED tha fact that TurboTax was not automatically flowing the AMT adjustment data from Federal to California and filed my tax return WITHOUT such adjustment.

I hope this helps.

[TomYoung]

@gianola 

I went back and re-read this sentence:

"For each transaction I checked both the Federal and California tax return: in the Federal tax return the adjustment was correctly computed and reported WHILE in the California tax retur there was NO adjustment flow through. NONE !!"

So you are saying that not even the 1st sale of the stock acquired via an ISO created an ATM adjustment in the California income tax return?  If that's correct, that just doesn't make sense unless there's something "local" to your file that's causing TurboTax to fail here.  I did open a test file and entered 2  test sales of stock acquired via IPOs that that did work properly with Schedule P included in the California income tax return.

Could you give me the 1st two sales entries you made - basis 1099-B info and Form 3921 info (leave the employer's name blank if you wish, that's not important) - so that I can try those entries?

Oh, you're certainly not obligated to post any follow up to your initial question in here.  But sometimes it's helpful - particularly if an answer you received worked - just to help other users.

[amgracer]

Thanks for the reply, I’ve tried both the online and desktop versions for 2019 (amended 1040X) and confirmed that the form for schedule P does exist but the ISO qualifying sale does not show up under the gains and losses section. 

I’m in contact with TurboTax support and should hear back from them tomorrow. In the mean time, I will run a test case. I have confirmed the pass through does work in 2018 year versions, and manually entering stock information in 2019 (instead of importing parts of it from E*TRADE) does not resolve the issue.

[gianola]

TomYoung

Thanks for following up.

I am saying that:

a) When I did the test case (with no other data personal income data) the AMT adjustment was computed correctly for Federal and it was transferred correctly as an ATM adjustment in the California income tax return in the California Schedule P(540) Form, Section "Adjusted Gain Loss Line 9 Smart Worksheet" line 1, 7 and 9.

b) Then when I entered the sale transaction (manually, NO import from the brokarege house) NOT EVEN the 1st sale of the stock acquired via an ISO created an ATM adjustment in the California income tax return.  

c) Regarding "Could you give me the 1st two sales entries you made ...", sorry but I would not.

I do believe the issue may be due to something depending on my other income, expense, deductions and other special situation. As a result the AMT adjustment transfer from Federal to Califonia is not occurring for me. 

As I said, having forced the numbers manually into the California Schedule P(540) Form, Section "Adjusted Gain Loss Line 9 Smart Worksheet" 1, 7 and 9 DID NOT change my tax liability (I checked the math was OK) so I did not pursue this any further and filed my tax return WITHOUT the California AMT Adjustment. 

I hope this helps.

[gianola]

Hello,

as you have read in this thread, I had the same issues (i.e. AMT adjustmnet not flowing from Federal to California tax return). 

I did NOT contact TurboTax Support with my situation, so I am now curious to see what they will come back with and if there will be an update to the California software.

Please keep un posted in this thread.

Thank You.