AMT

[jerry]

Add me to the  list of people confused by AMT ....

I have a client that exercised ISO's and incurred AMT preference income of about $1.2 million in 2021 and 2022.  The exercise price was about $1.  She had a carryforward MTC of about $260k

In 2023, she exercised another $1.2 million value of ISO's, and sold about $1 million of the previously exercised ISO shares.  The stock had declined since the 2021 and 2022 ISO exercises, and she sold it for about 1/2 of the FMV of the exercise.

So she has an AMT loss, and a huge regular tax gain of $800k.  I entered the AMT basis into the appropriate box on the  Dispositions screen 17.1

I would have thought that the huge AMT losses would offset her regular tax gains.  But no, she actually gets no MTC (because she incurred AMT in 2023??) and only $3000 of the AMT loss is used.  She owes $350k and is (very)  not happy.

Am I doing something wrong?  Is there a different way to enter into Lacerte that will get to a better result for her?

Thanks!

[Karl · Accepted solution]

Since she exercised more shares in 2023, that increased her AMT, offsetting the AMT loss by selling ISOs.  She shot herself in the foot by exercising and selling same year.  A generally leading strategy is to alternate exercising and selling ISOs by year to get to use the MTC.  So her MTC carries forward until a future year where regular tax exceeds TMT.

[jerry]

Thanks!