Paid AMT for ISO in 2016, sold in 2017. How do I get credit for AMT I paid in 2016 as broker's 1099-B does not pay attention to exercise price, only grant price?

[dcline99]

Need help on ISOs. Exercised ISO in 2016, paid AMT. Sold in 2017 (over 1 year later). Brokers 1099-B shows full spread between exercise price and sale price. How do I get credit for the AMT I already paid? To make it concrete, let's say that in 2016, I exercised 10000 shares when the stock was at $55, the option was granted at $5, so I paid AMT on $50/share (ouch). I held those shares for over a year and sold them in 2017 for $70/share. I was taxed at 28% on the exercise in 2016 (AMT rate) and I don't see where I can get credit for that and change the basis. Based on the 1099-B import from the broker, TT wants me to pay long term capital gains on $65/share (sale less grant price) even though I already paid AMT on most of that."

[TomYoung]

"Brokers 1099-B shows full spread between exercise price and sale price."

Assuming that the sale is a qualifying sale, (two or more years after grant, one or more years after exercise), then the broker's report of basis is correct.  You are getting the huge tax benefit of paying the tax on your gain at long term capital gains rates instead of your regular income tax rates that are much higher.

You don't want to use the method suggested by TurboTaxMinhT.  First, you have no adjustment to basis to report and, second, that method won't "feed" the Form 6251 the correct, (presumably higher), basis that's the stock's fair market value at the date of exercise.

This is one of the few times that I recommend using the TurboTax ISO step by step method to report the sale.  It states your capital gains correctly for regular taxes - proceeds  minus your cost of exercise - and also puts the correct "reversing" adjustment on line 17 of Form 6251.

You may or may not get some credit for the AMT taxes you paid, it's "situational."  You can't think of the additional tax you paid for AMT as a simple "timing difference", i.e., "I pay additional tax now but get it back when I sell" because it just doesn't work that way.

Tom Young

[dcline99]

Based on that, I deleted the Broker's imported 1099-B data from the sale in question and entered the information by typing it in myself by entering it under Stocks, Mutual Funds, Bonds, Other (Add More Sales) where it asks the proper ISO questions.  That seems to have entered the information properly on the 6251, though it entered the information on line 17, not line 14.

[TomYoung]

Yes, my mistake.  The line 14 is for the "originating" adjustment while line 17 is for the "reversing" adjustment.  I corrected that in the answer.

[nkmsd]

I've been trying to understand a similar problem, and @TomYoung 's answer is helping straighten me out. Let me follow up and check my understanding:

The AMT credit and the basis adjustment appear to be two separate things. First, the basis adjustment. When I make a qualifying sale of stock acquired through exercise in a year I incurred AMT, the regular Schedule D is unaffected: the basis is the ISO strike price. But on the AMT Schedule D, the basis is the FMV, which will lower my AMT exposure from that sale. This calculation is not sensitive to how much AMT I incurred when I exercised or how much AMT credit I have - if I incurred AMT the year I exercised to buy that lot, the basis to use on AMT Schedule D is the FMV. Is that about right? Or are there subtleties I'm missing?

Now, the credit. When I'm done with all the calculations, if I have no AMT liability, I can start spending the credit. I can claim an amount equal to (regular tax minus AMT). Is that about right?

Any clarifications or corrections to my understanding will be welcome.