AMT Calculator

When you exercise an ISO, you buy company stock at the exercise (strike) price, which is typically lower than the current fair market value (FMV). The difference between FMV and your strike price is called the bargain element or spread.

For regular income tax purposes: The bargain element is not taxed at exercise. ISOs get preferential treatment — you only pay tax when you eventually sell the shares, and if you hold long enough (1 year from exercise + 2 years from grant), the gain qualifies for long-term capital gains rates.

For AMT purposes: The bargain element is added to your income in the year of exercise, even though you haven't sold the shares or received any cash. This creates “phantom income” that can push your tentative minimum tax above your regular tax.

Example: You exercise 5,000 ISOs with a $10 strike price when the FMV is $35. The bargain element is $25 per share, or $125,000 total. If your regular taxable income is $150,000, your AMT income jumps to at least $275,000 (plus any SALT add-backs). This significantly higher AMT income could trigger tens of thousands in additional tax — even though you haven't sold a single share.

The trap: Many employees exercise ISOs in a year when the stock price is high, then the stock drops before they can sell. They owe AMT on the paper gain from exercise, but the actual value of the shares has declined. This is how people end up owing more in taxes than their shares are worth.

The AMT exemption is a flat amount you can subtract from your AMT income (AMTI) before calculating the tentative minimum tax. Think of it as the AMT's version of the standard deduction — it shields a portion of your income from AMT rates.

2025 AMT exemption amounts:

• Single: $85,700 exemption
• Married Filing Jointly: $133,300 exemption

Phaseout thresholds (2025):

• Single: Phaseout begins at $609,350 AMTI. The exemption is reduced by 25 cents for every dollar above this threshold. The exemption is fully eliminated at $951,750 AMTI ($609,350 + $85,700 x 4).
• Married Filing Jointly: Phaseout begins at $1,218,700 AMTI. Fully eliminated at $1,751,900.

AMT rate structure: Once you subtract the exemption, your AMT taxable income is taxed at:

• 26% on the first $239,100 of AMT taxable income (both Single and MFJ)
• 28% on AMT taxable income above $239,100

Key insight: The AMT exemption phaseout means that very high-income individuals effectively lose their exemption entirely. If your AMTI is above the phaseout zone, every dollar of ISO spread is taxed at 26% or 28% with no shelter. This is why the AMT disproportionately hits people with large ISO exercises.

The goal is to find the maximum number of shares you can exercise where the tentative minimum tax (TMT) stays at or below your regular tax. When TMT ≤ regular tax, you owe zero AMT.

The approach:

• Start with your regular tax — Calculate your regular federal income tax on your taxable income (excluding ISO exercises).
• Work backwards from TMT = regular tax — The maximum AMT taxable income that produces a TMT equal to your regular tax is the ceiling. From there, add back the AMT exemption to get the maximum AMTI, then subtract your regular taxable income and SALT to find the maximum ISO bargain element.
• Divide by spread per share — The maximum bargain element divided by the per-share spread gives you the optimal number of shares.

This calculator automates this process using a binary search algorithm that tests different share counts until it finds the exact maximum. The result is shown in the “Optimal ISO Exercise” section, and the sensitivity table lets you see the AMT impact at various exercise amounts.

Important caveat: Exercising right up to the AMT threshold means any unexpected income (bonus, side income, stock sale) could push you into AMT. Many tax advisors recommend leaving a cushion of 10-20% below the optimal amount.

When you pay AMT due to ISO exercises, you generate an AMT credit (officially, the “minimum tax credit”). This credit can be used in future years to reduce your regular tax liability. It exists because the AMT on ISOs is a timing difference, not a permanent one — you're paying tax early on income you haven't actually received.

How the credit works:

• Credit equals AMT paid — If you pay $30,000 in AMT this year, you get a $30,000 credit to carry forward.
• Use it in future years — In any subsequent year where your regular tax exceeds the tentative minimum tax, you can apply the credit to reduce your regular tax bill. The credit can only reduce your tax down to the TMT level — it can't create a refund on its own.
• Carries forward indefinitely — The AMT credit has no expiration date. You can carry it forward until it's fully used.

When you sell the shares: If you sell the ISO shares in a qualifying disposition (held 1 year from exercise + 2 years from grant), the gain is taxed as long-term capital gains. The AMT credit becomes easier to use because your regular tax on the sale is typically higher than the TMT, creating room to apply the credit.

Practical note: The AMT credit recovery can take many years, especially if your income and ISO exercises remain high. This is why avoiding AMT in the first place (by exercising the optimal number of shares) is often better than paying AMT and waiting to recover the credit.

There are several approaches to managing AMT when you hold Incentive Stock Options, ranging from timing strategies to exercise-and-sell approaches.

Key strategies:

• Exercise up to the AMT threshold — Use this calculator to find the maximum shares you can exercise without triggering AMT, then stop there. Repeat each year with a new calculation based on that year's income.
• Spread exercises across multiple years — Instead of exercising all your vested ISOs in one year, exercise a portion each year up to the AMT-free limit. This is especially effective if you have several years before the options expire.
• Exercise in a low-income year — If you're between jobs, took time off, or had a year with lower compensation, the AMT exemption covers more of the bargain element. Time your exercises accordingly.
• Same-day sale (disqualifying disposition) — If you exercise and immediately sell the shares, the gain is taxed as ordinary income (not capital gains), but it does not trigger AMT because the shares aren't held past the end of the tax year. You lose the preferential long-term capital gains treatment, but you avoid AMT entirely.
• Exercise early in the year — If you exercise in January and the stock drops, you can sell before December 31 in a disqualifying disposition to avoid the AMT hit. If the stock stays high, you keep holding.
• Monitor your AMT cushion throughout the year — Your regular tax changes as income comes in. Run this calculator periodically as you receive bonuses, RSU vests, or other income to see how much room you have.

What not to do: Exercise a large number of ISOs late in December without running the numbers. By that point, you have no time to course-correct if the stock drops or if your AMT bill is larger than expected.

Timing your ISO exercise strategically can significantly reduce or eliminate AMT exposure. The general rule is: exercise as early in the year as possible.

Why early-year exercises are better:

• Escape hatch available — If you exercise in January and the stock drops significantly by November, you can sell the shares before December 31. This converts the exercise into a disqualifying disposition, which is taxed as ordinary income but eliminates the AMT entirely. You control the outcome.
• Better information — You have the rest of the year to see how your income develops. If you get an unexpected bonus or large RSU vest, you can adjust your ISO exercise plan for the next year.
• Start the holding period clock — For qualifying disposition treatment (long-term capital gains), you need to hold the shares for at least 1 year from exercise. Exercising in January means you qualify by the following January, giving you an earlier window for favorable tax treatment.

The worst time to exercise: Late December, when you have no time to react if things go wrong. You're locked into the AMT consequences with no escape route.

83(b) election note: If you exercise unvested ISOs (early exercise), you have 30 days to file an 83(b) election with the IRS. This locks in the bargain element at the exercise date for AMT purposes. Without the 83(b) election, the bargain element would be calculated when the shares vest (likely at a higher FMV), increasing your AMT exposure.

State and Local Tax (SALT) deductions are not allowed under the AMT. If you itemize your deductions and claim SALT (state income tax + property tax, capped at $10,000 for regular tax), that entire SALT amount is added back to your income when computing AMT income (AMTI).

How this affects your AMT calculation:

• Regular tax: You deduct SALT, reducing your taxable income by up to $10,000.
• AMT: That SALT deduction is added back. Your AMTI is higher by the SALT amount, which means more income subject to AMT rates.
• Combined with ISOs: The SALT add-back on its own rarely triggers AMT for most people. But when combined with a large ISO bargain element, it can push you further into AMT territory. The SALT add-back effectively raises the bar for how many ISOs you can exercise AMT-free.

Standard deduction users: If you take the standard deduction (not itemizing), enter $0 for SALT in this calculator. The SALT add-back only applies if you actually claimed the SALT deduction on your regular return.

High-tax state impact: Residents of states like California, New York, New Jersey, and Massachusetts often pay significant state income taxes. The $10,000 SALT cap limits the regular tax benefit but the full add-back still applies for AMT, making AMT more likely in these states even without ISO exercises.