What the AMT is
The alternative minimum tax is a second, parallel way of calculating your tax. You compute your tax both ways and pay whichever is higher. For most people the regular tax wins. The ISO spread is one of the few items that can flip the result.
How AMT is calculated
- Start with regular taxable income.
- Add back preferences. For equity holders the big one is the ISO spread at exercise. State and local taxes are also added back.
- Subtract the AMT exemption: $90,100 single, $140,200 married filing jointly in 2026.
- The exemption shrinks by 50% of income above $500,000 single or $1,000,000 joint.
- Apply 26% to the first ~$244,500 and 28% above that.
- If this tentative minimum tax exceeds your regular tax, the difference is your AMT.
What changed in 2026
The 2025 tax law lowered the phaseout starting points (from about $626,350 single in 2025) and doubled the phaseout rate from 25% to 50%. High earners lose their exemption much faster, so a smaller ISO exercise can trigger AMT than in past years.
Your crossover point
For most people there's an amount of ISO spread you can add before any AMT kicks in, the gap between your regular tax and your tentative minimum tax. Exercising up to that amount each year is often the most efficient way to exercise ISOs in stages.
Getting it back: the AMT credit
AMT paid because of ISOs isn't lost for good. It becomes a minimum tax credit you carry forward indefinitely. You use it in later years when your regular tax exceeds your tentative minimum tax, often the year you sell the shares.
When you sell, your AMT basis is higher than your regular basis (strike plus spread). That creates an AMT capital loss adjustment that helps free up the credit.
Avoiding AMT altogether
- Sell in the same calendar year you exercise. A disqualifying sale in the same year removes the AMT preference.
- Exercise when the spread is small, early or right after grant.
- Split exercises across years to stay under your crossover point.
Estimate it
The ISO AMT Estimator calculates the spread, your exemption after phaseout, and the AMT on a planned exercise.
General information, not tax advice. AMT is complex, and a CPA review is worth it before a large exercise.
Frequently asked questions
How do you calculate ISO AMT?
To calculate this tax, start with your regular taxable income and add back preferences like the ISO spread. You then subtract the applicable AMT exemption and apply the 26% or 28% tax rate to the remaining amount. If this tentative figure is higher than your regular tax, the difference is the amount you owe.
What happens to the AMT I pay on ISOs?
The AMT you pay because of ISOs is not lost permanently. It is converted into a minimum tax credit that you can carry forward indefinitely to future tax years. You typically access this credit in years when your regular tax is higher than your tentative minimum tax, often during the year you sell your shares.
How can I avoid paying AMT on ISO exercises?
You can avoid this tax by selling your shares within the same calendar year you exercise them, which removes the AMT preference. Alternatively, you can exercise when the spread is small, such as right after the grant, or split your exercises across multiple years to keep the spread under your personal crossover point.
Does the AMT exemption change for high earners?
Yes, for 2026, the AMT exemption is $90,100 for singles and $140,200 for joint filers. This exemption decreases by 50 cents for every dollar of income earned above certain thresholds, meaning high earners lose their exemption much faster than in previous years, which can cause smaller ISO exercises to trigger the tax.
Official sources (for the detail-minded)
- IRC Section 55How the alternative minimum tax is calculated
- IRC Section 56(b)(3)The ISO spread counts for the AMT
- IRC Section 53Getting AMT back later as a credit
- IRS Form 6251The form used to figure AMT
- IRS Form 8801The form used to claim the AMT credit
Run your own numbers
See your tax, take-home, and what to set aside. Free, and nothing is stored.
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Estimates only. Not tax, legal, or investment advice. See our methodology