Any Way to Avoid Alternative Minimum Tax on Stock Options Exercised in 2008?

An employee chooses to exercise stock options with a stock option buy price of $20 on 8/1/2008 at a time the stock is trading for $27/share. In order to get capital gains on the sale of the stock, it must be held for one year after it is purchased. But if the employee holds the stock, they have an alternative minimum tax problem based on the value of the stock at the time they purchased it during the 2008 tax year. Is there any strategy to avoid the AMT and get a capital gains treatment on the sale if the stock is held for a year?

Reply to
Will
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On Jul 6, 5:52 pm, "Will" wrote:

There's an AMT tax credit, form 8801. Basically you calculate your AMT tax excluding stock options and a few other things, which will result in a lower AMT tax. They sometimes call this the alternative alternative minimum tax. The difference between the regular AMT and alternative AMT is your credit. You can use the credit in a future year. I don't get it because you pay tax one year and get it back the next year, so maybe someone else can claim how it works. There are limits of how much of the credit you can claim the following year, and unclaimed amounts may carry over to the following year.

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explains it well. Also, the cost basis of stock sold in a future year may be different for the AMT. I could be way off here, but this is how I think it works by reading the instructions. For the regular tax the cost basis is $20, and for the AMT it is $27. If the stock is $29 when you sell in 2009 or a future year, then line 16 ("Disposition of property (difference between AMT and regular tax gain or loss)") would be -$7 a share because the regular gain is $9 and AMT gain is $2. The regular gain of $9 has been included in your regular AGI. This -$7 a share reduces your AMT taxable income. Long term gains and losses are not subject to AMT, and are still taxed at 15%, along with qualified dividends. However, a lower AMT taxable income increases the AMT exemption, and thereby lowers the AMT tax. But I don't understand how you can take both the credit and the cost basis.

Anyone know if the Bush tax cut is phasing out the phaseout of the AMT exemption?

The California AMT form is schedule P. I don't know what the AMT credit form is, or if there even is one.

Finally, just to be sure, are these incentive stock options?

Reply to
removeps-groups

year.http://www.fairmark.com/amt/credit.htmexplains it well.>

I was going to answer this but I think if removeps-gro... just furnished the link to Farimark and left out the rest it would suffice. ed

Reply to
ed

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