Stock exercised one year and sold another tax implications

[BigJohn73]

Stock options exercised in 2015, paid AMT taxes on delta of strike price and market value for that year. Then I sold the stock options in 2017 and need to understand what amount I'm going to be taxed long term gains on based on the fact that I already paid AMT tax amount on 2015 taxes and I don't want to be double taxed on the same proceeds. The numbers here are strike price was .21 cents per share and exercised purchase when fair market value was $1.14 per share. So I paid AMT taxes on quantity of shares multiplied by .93 cents the delta between exercise price and market value.  Then in 2017 I sold the shares for $2.84 per share and need to understand if my long term capital gains exposure is based on the delta of original .21 cents a share and $2.84 final sales price, or will it be the delta of $1.14 and $2.84?

[Rick19744]

I want to understand if this is a qualified ISO plan (sounds like one).

[BigJohn73]

Yes, these were ISO shares.

[TomYoung · Accepted solution]

"... and need to understand what amount I'm going to be taxed long term gains on based on the fact that I already paid AMT tax amount on 2015..."

The "AMT" aspect of the original acquisition means that nobody here can really answer your question definitively; you're going to have to fill out your income tax return to see what actually happens here.

For "regular" tax purposes you're going to sell the stock with a claimed basis of $.21 per share.  For AMT purposes you're going to sell the stock with a claimed basis of $1.14 per share. You may very well get an AMT credit, or you may not; the devil is in the details in this case, details that nobody here, (a user to user group), know or understands.

Make sure you use the ISO step by step interview to report the sale in TurboTax.  TurboTax will automatically enter the necessary adjustment to Form 6251 for the stepped up basis of the stock for AMT purposes.

Tom Young

[BigJohn73]

Thanks Tom, much appreciated.

[Rick19744]

Since you confirmed that you have an ISO, you will have a different basis for regular tax and AMT.

For AMT, you add the bargain element of your exercised ISO to your alternative minimum taxable income in the year of exercise.  As a result, your AMT stock basis becomes the FMV of the stock as of the exercise date.  

So now when the ISO stock is sold, you will generally have a negative AMT adjustment equal to the excess of the AMT stock basis over the regular tax basis in the year of sale.

It is this adjustment that avoids the potential double tax that you are referring to.  However, while employees may have an AMT adjustment, that does not mean that they will always be subject to AMT tax.  But the above will neutralize any impact of picking up the AMT component in the year of exercise.

TT should handle this, however, you need to remember that when the question comes up on basis, you will need to input the correct AMT basis in order for TT to make this adjustment.

[BigJohn73]

Thanks Rick!

[austinwe]

@Rick19744 - is there any way you can help in providing how to get to the screen/question on how to make an adjustment to the AMT basis? I can't seem to find it anywhere while working through my return on TT.

[Rick19744]

Sorry @austinwe I understand the tax law, but am not familiar with the software mechanics.

I am going to tag @tagteam as I believe he will be able to provide assistance in this area.

[tagteam]

@Rick19744 

Frankly, I am uncertain as well other than to state that this scenario may require the use of Forms Mode for the adjustment (which, of course, requires a desktop version of TurboTax; the online versions do not support Forms Mode).

@TomYoung is proficient in this area and also TurboTax mechanics related thereto so I have tagged him.

[tb26]

I'm having the same issue as the original poster when doing my 2021 taxes and none of the suggested solutions seem to work for this year. Anyone figure this out?

[RobertB4444]

@tb26  Forms mode in the desktop version will still work in order to enter an AMT basis as well as a regular tax basis.  You will need TurboTax's desktop software in order to access forms mode.