Pair Capital Gains with AMT Capital Losses to Recoup AMT Tax Credit

If selling your ISOs results in an AMT capital loss, selling other assets for a capital gain can help recoup your AMT tax credit

This strategy is a special circumstance/branch of Sell ISO-Acquired Stock To Recoup AMT Tax Credit, and assumes that you have already read that article.

Strategy Overview

If ISO-acquired stock is sold for a AMT capital loss (given the different cost basis), additional limits/caps exist on claiming the loss (and thus accelerating the recoup of your AMT credit). To overcome these limits, a tax strategy exists where you can sell other (non-ISO) assets for a capital gain -> and that capital gain can pair with the AMT capital loss (from the ISOs) to help accelerate the recoup of your AMT tax credit.

Tax Details

As noted in the Alternative Minimum Tax Overview, most AMT inputs and calculations work exactly the same in standard taxation--unless otherwise specified to be different. One of the many areas where AMT and standard taxation are the same is how capital losses are handled: $3,000 per year of a capital loss can be utilized to offset income, and any additional amount is carried forward to future year(s).

When it comes to the dual-cost-basis (standard and AMT) dynamic of ISO-acquired stock, it is definitely possible to have a situation where the shares are sold for capital gain for standard tax purposes, but a capital loss for AMT purposes. If that occurs, AMT rules follow the above "$3,000 income offset, otherwise carried forward to a future year rule."

Stand-alone impact. In isolation (i.e. no other capital gains/losses in the tax year), the limited ability to use the AMT capital loss will reduce, or possibly even outright eliminate, any ability for it to accelerate the recoup of the AMT credit.

Paired impact. AMT follows the same rules as standard taxation unless otherwise explicitly different -> so tax-loss-harvesting rules apply just the same to AMT as standard tax. This provides a strategic opportunity. If you have an AMT capital loss that is being capped by the $3k max, any capital gain can/will pair with it. This can/will allow you to use the AMT capital loss sooner, and thus get you back to recouping a larger portion of your AMT credit due to the sale of your ISO-acquired stock (that had different cost basis).

Key Benefits

• (Re)accelerate recoupment of AMT credits. Pairing capital gains with your AMT capital loss can, collectively, allow you to reap the same benefits as if the AMT capital loss was not capped.

Key Considerations/Flags

• The sale will likely trigger long-term capital gains taxes to be owed. The recoupment of AMT credits is definitely beneficial, but the sale of the stock at a gain (including the additional stock sold to pair with the AMT capital loss) will also trigger long-term capital gains taxes to be owed.

• The year of sale can matter. As with all tax planning, some years may be more beneficial than others to conduct a sale of ISO-acquired stock. Capital gains and losses cannot be retroactively applied, so if you believe you may need to utilize this strategy), you need to ensure that the sale of the non-ISO asset with a capital gain occurs in the same (or a future) year as the sale of the ISO-acquired stock with an AMT capital loss.

• AMT laws are scheduled to change in 2026. How AMT is calculated and applied changed in 2018, and is currently scheduled to revert in 2026. If you're conducting planning across multiple years, you will likely want/need to take this change into account.

Strategy: When to Consider This and When to Avoid It

🟢 When to Consider This Strategy:

• If you have AMT credits, and the sale of your ISO-acquired stock would generate an AMT capital loss. If you are planning on selling your stock, strategically understanding how your AMT credit recoupment can be accelerated should be an important part of your plan.

• If you're concerned about your ability to recoup your AMT credit if/when AMT rules change in 2026. As of now, AMT rules changes that occurred in 2018 are scheduled to revert back in 2026--where recoupment may become more challenging (especially for high income earners). Developing a strategy to accelerate recoupment prior to 2026 may be beneficial to you.

🔴 When to Not Use This Strategy:

• If you don't want to trigger long-term capital gains tax. Selling stock for a profit means capital gains taxes are owed. This strategy is no exception, and could potentially be more challenging given the need to sell multiple assets.

• If you have limited or no AMT credits. In most normal tax years some AMT credits will be recouped. If you have a small AMT credit (or none at all), you don't need to try to accelerate the recoupment.

• If you prefer to hold ISO shares long-term for upside appreciation potential. Investment plan typically trumps tax optimization. If you desire to hold (at least some of) the shares long-term, selling for tax purposes may not make sense.

Example