ISO AMT Trigger Calculator

Exercising Incentive Stock Options (ISOs) at strike price doesn't create regular taxable income, but the bargain element (FMV − strike) × shares becomes a preference item for Alternative Minimum Tax (AMT). For employees of growing startups, a single ISO exercise can trigger six-figure AMT bills.

How ISO AMT Works

When you exercise an ISO and hold the shares, the spread between strike and FMV is added to your AMT income (AMTI). 2026 AMT exemption is $88,100 single / $137,000 MFJ (Rev. Proc. 2025-32). AMTI above the exemption is taxed at 26% (up to ~$236,600) and 28% above. You pay the GREATER of regular tax or tentative AMT.

The AMT Credit

Any AMT you pay on ISO exercise generates a Prior-Year Minimum Tax Credit on Form 8801. In future years when regular tax exceeds AMT, you can claim the credit. The credit is non-refundable but carries forward indefinitely — most ISO exercisers recover their AMT over 3-7 years.

Strategies to Manage AMT

(1) Exercise early in the year (January) to give yourself 14 months to evaluate before paying AMT in April. (2) Exercise the maximum AMT-free amount each year (often $50K-$200K per year before triggering AMT). (3) Same-year disqualifying disposition eliminates AMT but converts to ordinary income — sensible if FMV drops. (4) 83(b) election at grant if early exercise is permitted — locks in low spread.

Last updated May 2026. Sources: IRS Form 6251 AMT, IRS Pub 525 Taxable Income, IRS Rev Proc 2025-32.