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ISO AMT Calculator

Estimate the tax on your Incentive Stock Options — the bargain element, the Alternative Minimum Tax that can hit when you exercise and hold, and your total tax for a qualifying or disqualifying sale.

ISOs get favorable tax treatment — but exercising and holding can trigger the Alternative Minimum Tax (AMT) on a paper gain you have not sold. This tool estimates that AMT, the bargain element, and how a qualifying vs disqualifying sale changes what you owe.
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The 409A / market value per share on the day you exercise.
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Qualifying sale = held >2 years from grant AND >1 year from exercise. Exercise & hold shows the AMT with no sale yet.
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Bargain element
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Est. AMT at exercise
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Ordinary income
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Capital gain at sale
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Your regular-tax cost basis
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For regular tax, basis is the strike price. If you paid AMT at exercise, your AMT basis is the FMV — track both, because the difference becomes an AMT credit you can recover later.
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How to use it

  1. Enter the options exercised, your strike price and the FMV at exercise — the gap between them is the bargain element.
  2. Enter a sale price, your marginal rate and optional state rate.
  3. Pick exercise & hold to see the AMT, or a qualifying / disqualifying sale to see the tax at sale.
  4. Compare scenarios — holding for a qualifying disposition usually lowers your rate but exposes you to AMT.

How it’s estimated

Exercising an ISO creates no regular income tax, but the bargain element (FMV minus strike) is an AMT preference item when you hold the shares. A qualifying sale taxes the whole gain at long-term rates; a disqualifying sale taxes the bargain as ordinary income.

Simplified estimate. AMT is shown as 26% of the bargain element and ignores the AMT exemption, its phase-out and your other income — real AMT can be lower or higher. It also ignores NIIT. Use as a directional estimate, not a filing figure.

How ISOs are taxed

Incentive Stock Options are the most tax-favored form of employee equity — and the most dangerous if you do not plan. When you exercise an ISO you pay no regular income tax, even though the shares may be worth far more than your strike price. The gap between the fair market value at exercise and your strike is the bargain element. For regular tax it is invisible at exercise; for the Alternative Minimum Tax it is not.

The AMT trap

If you exercise and hold the shares past year-end, the bargain element is added to your Alternative Minimum Tax income. You can end up owing real cash to the IRS on a gain you have not realized. In a falling market this is brutal: people have exercised at a high FMV, held, watched the stock collapse, and still owed AMT on the original paper gain. The way to limit it is to keep the bargain element small — exercise when the FMV is close to the strike — or to sell enough shares to cover the tax.

Qualifying vs disqualifying disposition

Sell the shares more than two years after grant and more than one year after exercise and you have a qualifying disposition: your entire gain over the strike price is a long-term capital gain, the best possible outcome. Sell sooner and it is a disqualifying disposition. In a disqualifying sale the bargain element (capped at your actual gain if the price fell) is taxed as ordinary income, and any additional appreciation is a capital gain. Selling in the same year you exercise removes the AMT preference, which is sometimes used deliberately to avoid AMT.

Two cost bases

ISOs force you to track two cost bases. For regular tax your basis is the strike price. If you paid AMT at exercise, your AMT basis is the higher FMV. When you eventually sell, that difference produces a negative AMT adjustment and helps you recover the AMT you paid as a minimum-tax credit. Keep Form 3921 and your exercise records — without them, reclaiming the credit is painful.

A quick example

You exercise 1,000 ISOs at a $2 strike when the FMV is $12. Your bargain element is ($12 − $2) × 1,000 = $10,000. Exercise and hold, and roughly $2,600 of AMT (about 26%) may apply this year even though you sold nothing. Hold to a qualifying disposition and sell at $20: your entire ($20 − $2) × 1,000 = $18,000 gain is long-term, and the AMT you paid becomes a credit. Do a disqualifying sale at $20 in the same year and $10,000 is ordinary income with the remaining $8,000 a capital gain.

Final word

ISOs can be the most valuable line on your compensation — but the AMT turns them into a planning problem, not a set-and-forget one. Model the bargain element before you exercise, decide whether the long-term rate is worth the AMT exposure, and keep every exercise record. When the numbers are large, work the plan through with a qualified tax professional.

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Frequently asked questions

How are incentive stock options (ISOs) taxed?

There is no regular income tax when you exercise an ISO. If you hold the shares, the bargain element becomes an Alternative Minimum Tax preference item that year. When you sell, a qualifying disposition is taxed entirely as a long-term capital gain; a disqualifying disposition taxes the bargain element as ordinary income.

What is the ISO AMT trap?

When you exercise and hold, you owe no regular tax, but the paper gain (FMV minus strike) can push you into the Alternative Minimum Tax. You can owe real cash on a gain you have not sold — and if the stock later falls, that AMT bill can exceed the shares’ value. This is the single biggest risk with ISOs.

What is a qualifying disposition for ISOs?

You must hold the shares more than two years from the grant date and more than one year from the exercise date. Meet both and your entire gain over the strike price is taxed at long-term capital-gains rates. Sell earlier and it is a disqualifying disposition.

What is the AMT credit?

The AMT you pay because of an ISO exercise generally becomes a minimum-tax credit you can use in future years when your regular tax exceeds your AMT. Over time it can be recovered, which is why tracking your separate AMT cost basis matters.

How are ISOs different from NSOs?

NSOs are taxed as ordinary income on the bargain element the moment you exercise, with payroll withholding — no AMT. ISOs defer regular tax and can qualify for long-term rates, but carry AMT risk. See our NSO calculator to compare.

Should I do an 83(b) election or early exercise?

Early exercising while the FMV is close to the strike keeps the bargain element small, which limits AMT and starts the holding-period clock. Whether it fits depends on the spread, your cash and your risk tolerance — model it and confirm with a professional.

Methodology & sources

Calculations follow standard U.S. treatment of incentive stock options and the Alternative Minimum Tax. References: IRS Publication 525, Form 6251 (AMT), Form 3921 and Form 8949 instructions. Tax year 2026. Last updated 2026-07.

⚠️ Educational estimate only — NOT tax advice. Your actual tax depends on your full income, filing status, state, residency and current law. Confirm with a qualified tax professional before acting.
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