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Subject:   ISO Question
Date:   Thu, 31 Mar 2005
From:   Dave

If a taxpayer exercises an ISO in 2001 and sells the shares in 2004, is the cost basis of the shares increased by any AMT paid in 2001?

Thanks
Dave

Answer

Date:   Fri, 08 Apr 2005

Hello Dave,

No. The AMT might be partially recovered through the minimum tax credit. See Federal Form 8801 and the related instructions. The tax basis of the stock is adjusted for the additional income reported on the 2001 AMT schedule to prepare an AMT Schedule D, thus creating an AMT vs. regular tax difference to report at line 16 of Form 6251, so the regular tax will exceed the tentative minimum tax, permitting part of the minimum tax credit carryover to be used.

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.