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Subject:   Is AMT loss limited to $3k over gain per year?
Date:   Tue, 27 Nov 2001
From:   Brian

I reviewed a return involving sale of stocks obtained through exercise of iso's. In the year of exercise there was a considerable AMT gain. In the year of sale there was a considerable AMT loss, entered on Form 6251 line 9. I was surprised to see that the preparer effectively limited the loss deduction to $3k by an adjustment on Form 6251 line 14 (o). (There also was ISO gain on line 10). Is this proper?

If it is proper, then the taxpayer is in the ironic situation of having an AMT capital loss carryforward at the same time as an AMT tax credit carryforward.

Thank you in advance for your anticipated response.

Brian

Answer

Date:   26 Dec 2001

Hello Brian,

Your worst fears are confirmed.

For AMT reporting, the regular tax rules for ISOs don’t apply. ISOs are taxed like NQOs for AMT reporting.

Therefore, ordinary income is reported in the year of exercise. A basis adjustment is made for the ordinary income reported. If the value of the stock drops after exercise, an AMT capital loss can result, which is limited to other capital gains plus $3,000.

Good luck!

Mike Gray

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IRS Circular 230 Disclosure: As required by U.S. Treasury Regulations, you are hereby advised that any written tax advice contained in this answer was not written or intended to be used (and cannot be used) by any taxpayer for the purpose of avoiding penalties that may be imposed under the U.S. Internal Revenue Code.