Options Trading Tutorial

Amt and stock options?

Cpl of years back, I exercised some stock options for the company I worked for. I exercised the stock options into shares( and not cash). It is a different debate as to why I did this because i wasn't aware of the catch in there that I would be caught into AMT and because of that, I ended up paying AMT that year. Now in 2006 last year, I sold those shares at a loss( would you believe it). So my question is... 1>Is there any AMT adjustment that can be done this year for the loss in those shares ?( It doesn't look like that I have to pay AMT this year) 2>If the above is no, then does this loss qualify only as a short/term long term loss with other stock transactions ? Thanks a lot!

Public Comments

1. You can take a credit against your taxes this year for the amt tax paid in the prior year.
2. Complete Form 8801 to flow the credit for a prior year's minimum tax into your 2006 return. Refer to the form and instructions at the links below. http://www.irs.gov/pub/irs-pdf/f8801.pdf http://www.irs.gov/pub/irs-pdf/i8801.pdf If you sold the shares (sounds like they were exercised under an ISO option plan) either more than 2 years after the grant date or more than 1 year after the exercise date, there should be no disqualifying disposition in 2006 that would require you to treat any portion as ordinary income. Your 2006 sale will be reported as long-term capital loss if you held the shares more than a year (measured form the exercise date). Your basis was increased by the amount included in your income in the year of exercise, so it will be the grant price plus the ordinary income previously taxed to you. Long-term capital losses are only deductible against capital gains and up to an additional $3,000 of ordinary income, but the excess can be carried over indefinitely until used. However, if your sale is not more than either 2 years after the grant date or 1 year after the exercise date (I know you said you exercised them a couple of years back, but that could have been in 2005 and your sale was in 2006), then your sale will result in a disqualifying disposition based on the net sales price (which you said is lower than the exercise price) compared to the grant price. (It would have been based on the difference between the exercise price and the grant price if your sale was for more than the exercise price.) The compensation element, which in this case would be your total gain (net sales price compared to grant price, less selling expenses), and is reportable as wages.