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Can I ever get out of AMT hell (after a tax-naive ISO exercise)

Is there an easy way to understand the ramifications of AMT for ISOs?

After the stock bubble burst, I was left with an AMT tax which was far greater than my entire income due to my exercise of an ISO stock option. I had to empty my bank account and remortgage my house just to pay taxes on money that I never made (and never will make) due to my lapse of understanding of the horrors of the AMT for ordinary people. Trust me, if a five-foot-two inch petite lady ever goes postal in Congress, you can look me up!

My problem is I still don't understand how to get OUT of the AMT calculation horror. I still own the (nearly worthless now) shares of that ISO that kicked me into the horrors of the AMT. Yet, every year since, I've had to fill out a miriad of alternate tax forms.

Basically, because of the horrors of Congress' Alternative Minimum Tax system, I have to repeat the horrors of the regular tax system, twice, and with wholly different rules. For example, I have to fill out form 8582 passive activity loss limits twice, once with regular calculations, the other with AMT calculations. Same with the CA3801. Twice. Same with 8801 AMT prior year calculations. Twice. And the list goes on.

Everything seems to turn topsy turvy with the Alternative Minimum Tax system - for example, a 29.5 year depreciation turns into a 40-year depreciation.

The question I'm leading up to, in exhausted exasperation, is whether or not there is a way to UNDERSTAND the AMT such that I can figure out how to (finally) get out of it given that the single item that kicked me into the huge AMT (more than my income) tax was a naive exercise of an ISO stock option. That stock is now nearly worthless so I've paid far more in AMT taxes than the stock is currently worth.

I ask in almost complete exasperation ...

Is there an easy way to describe how I can get out of this AMT tax calculation hell?

Reply to
Susan Grossman
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Yes, but you'll get that money back in a future year. An AMT hit related to incentive stock options just moves things around from tax year to tax year (sometimes disastrously, as you have found out). It isn't like an AMT hit due to large deductions.

See form 8801, "credit for prior year minimum tax".

As for the paperwork, yes you are stuck with it until you have gotten back that AMT money.

I'll also agree with the other poster - since the amount of money at stake for you is so large, consider professional advice if you are at all unclear on this. It isn't clear to me from your post whether you are paying many thousands of dollars more than you should. Someone who knows what they are doing should be able to figure that out, and file amended returns for you if necessary.

Reply to
Jim Kingdon

You hit the nail on the head! The problem I'm having with my Alternative Minimum Tax calculations is how do I understand how to SEPARATE the AMT that I paid for the tax-timing ISOs from the AMT that I paid for my second mortgage, our schedule E depreciations, our high California income and property taxes, etc. I think the tax/stock question boils down to how do we better understand the AMT implications of getting the credit for tax timing items from the non-refundable AMT paid for the tax preference items? I think that quandary is my fundamental mental block. Maybe this supposed IRS AMT tax ramification calculation site might help:

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4802 Since we only pay one alternative minimum tax, can anyone simplify how we separate the refundable credit for the tax timing items from the non-refundable amount for the tax preference items? At this point, that's where my AMT emotional/mental block lies, I think. Sue

Reply to
Susan Grossman

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