Adjust Capital Gains to account for AMT already paid

[jmcicc111]

In 2020 I exercised ISO stock options. I paid roughly $80,000 dollars in taxes in 2020 due to exercising these option, but I didn’t sell any of them.

Last year, in 2022 I sold 2,350 of them for an average price of $25.40.

The taxes I paid in 2020 was based on a fair market value of $35.00. This means that i paid taxes on stock worth $35.00 but when I sold it it was worth $25.40.  $25.40 - $35.00 = $9.60 per share. At 2,350 shares that a different of $22,557.25.

Fidelity has given be a 1099-B form which is what i have entered into turbo tax. However that assumes that i purchased the price at $2.38 which is what was on my 3921 form from 2020. The 3921 form values were

Box1 (Date option granted)=7/31/2018.

..

Box2 (date option exercised) = 9/11/2020.

..

Box3 exercise price per share)= $2.38.

..

Box4 (fair market value per share on exercise date) = $35.00.

..

Box5 (no. of shares transferred) = 10,180   

..

————

I need to know how to deduct this amount so that I am not paying taxes on stock that was sold for less than I exercised at.

[DianeW777 · Accepted solution]

You must manually adjust the cost basis for the amount you paid ($2.38 + amount included in taxable income on the day of exercise =$35 total per share based on your comments above).

You are allowed the full cost basis at the time of sale which is all of your after tax money used to purchase them at exercise.

Go to the sale of this stock and make the cost basis adjustments for these shares. 

• Search (upper right) > Type 1099b > Click the Jump to .... link
• Edit beside the appropriate sales

[jmcicc111]

Thanks this is what I needed. To give a more specific description for anyone else, I needed to check "enter them individually" after confirming it was an ISO sale. Then after checking the box that the cost basis is incorrect, I needed to check the field that said "I can't find it and need help" in regards to a supplemental form to the 1099-B.  It seems this is because the broker I sold the stock with is not affiliated with the company that issues the original options... So they don't have any information other than the cost basis from when I transferred the options over. 

This all led me to various prompts that allowed me to enter my 3921 form details from the ISO exercise. It appears this is doing what I need it to do. 

Thanks again. @DianeW777 

[JQ21]

I have the same issue, wonder if you have figured out how to do it.  My sale of ISO stocks held more than one year should lead to about -$40k AMT income adjustment.  Changing cost basis of the sale only messes up with the long-term capital gain tax (schedule D), it does nothing to my AMT income.  Tried to adjust AMT income under AMT review, but somehow my "Disposition of Property" was limited to about $16k, far less than the $40k adjustment I entered. Very frustrated. Any help will be appreciated. Thanks.

[DavidD66]

If you exercised Incentive Stock Options and held the stock (did not sell) past year end in the year of exercise, any tax you paid on that transaction would have been AMT.  Your AMT basis in the stock is $35/share, but your regular tax basis is $2.38.  That would have given you an AMT tax credit.  Now that you have sold the stock, you must calculate your regular tax using a $2.38/share basis, and then calculate your AMT and see if you can use some or all of your AMT credit.  You should have filed Form 6251 in 2021 in order to roll your AMT credit forward.  You cannot just adjust your regular tax basis to that of your AMT basis.  In all likelyhood you probably won't be able to use all (if any) of your AMT credit, unless you are otherwise in a AMT tax situation.  

[JQ21]

Thanks! @DavidD66 The problem I see with Turbotax is that there is no place to enter the AMT adjustment for each ISO stock sale individually. What people often referring to is to adjust cost basis for regular tax.  The only place I can enter AMT adjustment is under "Other Tax Situation / Alternative Minimum Tax". There one enters the total AMT adjustment combining all sales, making it hard to track and understand. Could it that I have missed something, but I have been playing around for some time now and so far could not find any.

[JulieS]

No, you can' t enter an AMT adjustment for each transaction. You will need to figure the total and enter it in the AMT section. 

You can keep a record of the adjustment for each transaction for your own records, in case you need it in the future. 

[jsunuf]

I understand that I should update the AMT gain or loss adjustment in the Other Tax Situations section. But I'm not 100% confident in what TurboTax is asking for this field. Using the example offered in the original post:

Strike price: $2.38

FMV when ISO was exercised: $35.0

Actual price when sold: $25.4

total number of shares: 2350

Regular tax long term capital gain: 2350 * (25.4 - 2.38) = $54,097

AMT long term capital gain: 2350 * (25.4 - 35) = $-22,560

What number is the box for long-term AMT gain or loss adjustment in Turbo tax asking for?? is it the $-22,560 or ($-22,560 - $54,097)? or some other value?? 

[DaveF1006]

It depends. Normally the long term capital gain or loss adjustment and the AMT gain/loss adjustment is the same except that incentive stock options could trigger a difference causing a difference. This is usually caused by a  spread between the exercise price and fair market value of the stock at exercise is subject to the alternative minimum tax (AMT) on exercise. This is according to a Turbo Tax post.

In your case the AMT adjustment would be as follows: (2350 X 35.4) - (2350 X 2.38)=$77,597. Please read the link for further information in section titled Unused AMT credits.

@jsunuf 

[AllanX]

Like others in this thread, I need to adjust stock basis for AMT as the stock was purchased multiple years ago as an ISO exercise.

From what I see and read here and elsewhere, the only way to do this is by lump sum adjustment of investment income in the "Let's adjust your investment income" page. The "gain" figures entered on that page however, do not seem to have any effect on Form 6251 line 1k. No matter what I do, that line always seems to be zero (so the AMT gain is exactly the same as the standard capital gain).

As I posted here:

https://ttlc.intuit.com/community/taxes/discussion/amt-adjustment-bug-in-2023/00/3229912

it looks to me like Turbotax has a bug....but I'd be happy to be shown otherwise....

[AllanX]

(the original post should have referred to line 2k, not 1k)

I found the solution is to open form "Schedule D AMT" and manually edit Part II Column g (Gain or Loss Adjustment). In order to do this, you must choose to Override the values in that column (right click and choose "override").

[jsunuf]

I finally figured this out, use the Desktop version, there's an option to adjust AMT cost basis there that's not available when you use turbo tax online. 

[JQ21]

That was what I did last year for the 2022 return. The online version does not allow directly editing the form, but the desktop version does. It appears it is still the case for the 2023 return.

[nemo0752]

Thanks for this. I just purchased the desktop version and I see the options to adjust investment income. However, I'm not exactly sure what goes in "Net gain from disposing of investment property" and in "Net capital gain from disposing of investment property" and "AMT adjustments to investment expenses". How does this map to the numbers in the example? Thanks in advance.

[SJCPA1]

This is the wrong answer...
You don't adjust the cost basis.  The AMT credit takes care of the increase in capital gains. 

If you adjust the cost basis to FMV, you pay less taxes than you should because of 1) lower capital gains, 2) AMT credit.