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AMT Credit

If you owe the alternative minimum tax (AMT) because of an incentive stock option (ISO) exercise, all or part of the excess of the amount of your AMT liability over your regular-tax liability for that year can generate a tax credit. It is applied against your regular taxes in one or more later years.

The calculation, made on IRS Form 8801, is not simple and requires a tax professional. The credit could be available to you if the AMT you paid in prior years was triggered by exercising ISOs instead of other tax events. Tax items that trigger AMT because they result in an exclusion of income for regular-tax purposes rather than a deferral of taxation (such as payment of state taxes) do not result in tax credits.

If you are eligible for a tax credit that results from the exercise of your ISOs, that credit may be applied directly against your tax liability in years in which your regular-tax liability exceeds your AMT liability. The AMT credit can be used only to reduce your regular-tax liability by the amount it exceeds your AMT liability for each year. The balance of the credit carries forward and may be used in subsequent years.

See the FAQs on ISOs for more details.

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