ISO AMT Exercise Tax Shock 2027 Calculator
Calculate the AMT tax shock from exercising Incentive Stock Options (ISOs) in 2027 — the bargain element creates AMT preference at 26-28% even if you don't sell the shares.
The AMT Trap
ISO exercise has NO regular tax at exercise (vs NSOs which are taxed). But the 'bargain element' (FMV − exercise price) creates an AMT preference item. If your AMT exceeds regular tax for the year, you owe AMT on the bargain element — without having sold shares to pay it.
AMT Calculation Simplified
AMTI = regular taxable income + ISO bargain element − AMT exemption. 2027 AMT exemption: ~$87,000 single, $135,000 joint (phaseout above ~$610k single). AMT rate: 26% on first $232,600 AMTI, 28% above. AMT = lesser of (AMT − regular tax) or excess.
AMT Credit Carryforward
Pay AMT now, recover later. When you later sell the stock (or in years AMT < regular tax), the AMT credit reduces your tax. Carryforward indefinitely. The credit reverses the timing mismatch, but only if you have enough regular tax in future years to absorb it.
Strategy: Exercise Early, Stay Below ISO 100k Limit
Exercise small batches each year keeping bargain element under AMT exemption. Or exercise large in low-income year (between jobs, on sabbatical). Time vested-but-unexercised options if grant has 10-yr expiration runway.
Source: irs.gov Form 6251 AMT, Section 422 ISO rules. Last updated: May 2026.
Frequently Asked Questions
Should I exercise ISOs early?
Yes if FMV near exercise price (low bargain) and you believe value will rise. Locks in capital gains holding period start. Risk: company tanks and your exercise cash is lost. Don't exercise > 25% of net worth without diversification plan.
Can I avoid AMT entirely?
Yes by: 1) Exercising in low-income year. 2) Same-year exercise + sale (disqualifying disposition — but you lose long-term gains treatment). 3) Staying under AMT exemption with smaller annual batches.
What if I can't pay the AMT?
Sell some shares (disqualifying disposition) to fund tax. Or finance: home equity, taxable account margin. Don't borrow from 401k (will get worse if shares drop). Some startups offer 'tax bridge loans' — usually predatory rates.
Is the AMT credit guaranteed?
Carries forward indefinitely. But you need enough regular tax to absorb it in future years. If you change jobs/income drops, credit may sit unused for years. Cap on annual recovery = current regular tax - tentative AMT.
Is my data private?
Yes. All calculations run in your browser. Inputs are never sent, stored, or shared.