ISO AMT Exercise and Hold Calculator
Exercising ISOs and holding the shares can turn the whole gain into long-term capital gain, but the spread at exercise counts as income for the alternative minimum tax (AMT). This calculator estimates your 2026 federal AMT, shows the full breakdown from bargain element to AMT owed, and finds the AMT crossover — how many shares you can exercise before any AMT is due.
Wages and other ordinary income for 2026 (roughly your AGI). The standard deduction is subtracted for you.
Tax year 2026 federal estimate using IRS Rev. Proc. 2025-32 figures. Assumes you take the standard deduction and that all other income is ordinary income.
An ISO AMT exercise-and-hold calculation estimates the alternative minimum tax you owe when you exercise incentive stock options and keep the shares past year end. The spread between fair market value and strike price, called the bargain element, is added to AMT income, and you owe AMT only when the tentative minimum tax is higher than your regular tax.
Why Exercise And Hold Matters
Shares bought with an ISO and then held meet the qualifying disposition rules once you sell more than 1 year after exercise and more than 2 years after the grant. The gain over the strike price is then taxed at long-term capital gains rates instead of ordinary rates. At the top federal bracket that is 20% instead of 37% — up to 17 percentage points less. The price of waiting is that the bargain element counts as AMT income in the year you exercise, even though you have sold nothing.
2026 AMT Exemption, Phase-Out and Rates
The One Big Beautiful Bill Act (Pub. L. 119-21, section 70107) made the higher AMT exemptions permanent but, from tax year 2026, reset the phase-out thresholds to $500,000 and $1,000,000 and doubled the phase-out rate from 25% to 50%. For comparison, the 2025 exemptions were $88,100 and $137,000 and the phase-out started at $626,350 and $1,252,700.
| Tax year 2026 | Single | Married filing jointly |
|---|---|---|
| AMT exemption | $90,100 | $140,200 |
| Phase-out starts at AMTI of | $500,000 | $1,000,000 |
| Exemption reaches zero at AMTI of | $680,200 | $1,280,400 |
| Phase-out rate | 50% of AMTI above the threshold | |
| AMT rates | 26% on the first $244,500 after the exemption, 28% above | |
| Standard deduction (not allowed for AMT) | $16,100 | $32,200 |
How the Calculator Works Out AMT
Regular tax is figured one way and the tentative minimum tax a parallel way that adds the ISO bargain element. You pay regular tax plus any excess of the tentative minimum tax over it. With the default inputs — 3,000 shares, $2.50 strike, $18.00 fair market value, $180,000 of income, single — the steps are:
| Step | Formula | Example |
|---|---|---|
| Bargain element | (FMV − strike) × shares | $46,500 |
| Regular taxable income | Income − standard deduction | $163,900 |
| Regular tax | 2026 brackets | $31,934 |
| AMTI | Regular taxable income + standard deduction + bargain element | $226,500 |
| Exemption applied | $90,100 less 50% of AMTI over $500,000 | $90,100 |
| Tentative minimum tax | 26% × ($226,500 − $90,100) | $35,464 |
| AMT owed | Tentative minimum tax − regular tax, not below 0 | $3,530 |
The AMT crossover in this example is about 2,124 shares: exercise that many at a $15.50 spread and the tentative minimum tax stays just under the regular tax, so no AMT is due. The calculator also tracks both bases: your regular-tax basis is the $7,500 you paid, while your AMT basis is the $54,000 market value, which lowers the AMT gain when you later sell.
Optimal Exercise Window
The lowest-AMT window is when fair market value is closest to the strike price. A $1 spread adds almost nothing to AMT income. A $20 spread on 10,000 shares adds $200,000: for a single filer with $180,000 of income the calculator shows about $44,348 of AMT on shares that have not been sold. Splitting an exercise across tax years so each year stays near the crossover can reduce the total.
What This Calculator Does Not Model
The result is a federal estimate for a standard-deduction filer whose other income is all ordinary income. It does not model state income tax or a state AMT, the minimum tax credit carry-forward that can return AMT in later years (Form 8801), the 3.8% Net Investment Income Tax, itemized deductions, capital gains and qualified dividends taxed at their own rates, head of household or married filing separately status, or other AMT adjustments. Use it to size the problem, then confirm with a tax professional before exercising.
Sources: IRS Rev. Proc. 2025-32 (2026 tax tables, AMT exemption, phase-out thresholds, 28% breakpoint, standard deduction); 26 U.S.C. 55(d) (50% phase-out rate from 2026); IRS Instructions for Form 6251 (ISO adjustment, standard deduction add-back); 26 U.S.C. 422 (holding periods); IRS Topic 556 (AMT and the minimum tax credit); IRS Topic 559 (3.8% NIIT); California FTB Schedule P (540) instructions (state AMT example). Last updated: October 2026
Frequently Asked Questions
What is the AMT bargain element?
The bargain element is the fair market value on the exercise date minus the strike price, multiplied by the number of shares exercised. When you exercise and hold an ISO it is not regular taxable income, but it is added to alternative minimum taxable income (AMTI) on IRS Form 6251, line 2i.
What are the 2026 AMT exemption amounts?
For tax year 2026 the AMT exemption is $90,100 for single filers and $140,200 for married couples filing jointly (IRS Rev. Proc. 2025-32). It shrinks by 50 cents for every dollar of AMTI above $500,000 (single) or $1,000,000 (joint) and reaches zero at $680,200 and $1,280,400. The 26% rate applies to the first $244,500 of AMT income after the exemption and 28% applies above that.
When is ISO AMT owed?
In the tax year you exercise the options and still hold the shares at year end. If you sell the shares in the same calendar year you exercised, the IRS Form 6251 instructions say the regular tax and AMT treatment are the same and no AMT adjustment is required.
Is AMT recoverable?
Often, yes. AMT caused by an ISO exercise generally creates a minimum tax credit, claimed on IRS Form 8801, that can reduce your regular tax in later years when you are not liable for AMT. Recovery can take several years and this calculator does not project it.
What is a qualifying disposition?
A sale of ISO shares more than 1 year after you exercised and more than 2 years after the option was granted. The gain over the strike price is then taxed as long-term capital gain instead of ordinary income.
What is a disqualifying disposition?
A sale of ISO shares within 1 year of exercise or within 2 years of the grant date. The holding periods in section 422 of the tax code are not met, so income from the sale is treated as ordinary income rather than long-term capital gain.
When should I exercise ISOs?
AMT depends on the spread between fair market value and strike price on the day you exercise, so a smaller spread adds less AMT income. The calculator shows the AMT crossover: the number of shares you can exercise at the current spread before any AMT is owed. Cash, risk and your holding period matter too, so check with a tax adviser before you exercise.
What if I leave the company?
To keep ISO tax treatment you must exercise no later than 3 months after your employment ends, or 1 year if you are disabled, under section 422(a)(2) of the tax code. Options exercised later are taxed as non-qualified stock options. Your plan can set a shorter deadline, so read your grant agreement.
Are there state-level AMTs too?
Yes, some states run their own alternative minimum tax. California, for example, uses Schedule P (540) and has its own adjustment for incentive stock options. This calculator estimates federal AMT only.
Is this tool free?
Yes. It runs in your browser and no data is sent anywhere.