ISO AMT calculator: will exercising my options cost me?
The trap nobody warns you about: exercising Incentive Stock Options and holding the shares owes no regular income tax — but the paper gain is an AMT preference. So you can owe a big Alternative Minimum Tax bill on money you never received, having sold nothing. Enter your grant to see the AMT before you exercise.
Your ISO exercise
The paper gain (bargain element)
The AMT math
Worked examples
Startup engineer exercising 8,500 ISOs for the first time
Estimated AMT triggered by this exercise: $15,080
Exercising and holding these ISOs adds about $15,080 in AMT this year (14.1% of a $106,675 paper gain) — owed at filing, with no shares sold and no cash from them.
⚠ You'd owe about $15,080 in AMT even though you sold nothing and got no cash — the classic ISO trap. Make sure you can cover it, or exercise fewer shares. Much may come back later as a Minimum Tax Credit.
The paper gain (bargain element)
- Market value per share: $14.40
- Strike / exercise price per share: −$1.85
- Spread per share: $12.55
- × shares exercised: 8,500
- Bargain element (AMT preference): $106,675
- Cost to exercise (cash out of pocket): $15,725
The AMT math
- Your regular taxable income: $168,400
- + ISO bargain element: +$106,675
- = AMT income (AMTI): $275,075
- − AMT exemption ($90,100): −$90,100
- = AMT base: $184,975
- Tentative minimum tax (26% / 28% over $244,500): $48,094
- Your regular tax (for comparison): $33,014
- AMT you owe (TMT − regular tax, if positive): $15,080
Married VP exercising 40,000 ISOs before the IPO
Estimated AMT triggered by this exercise: $337,934
Exercising and holding these ISOs adds about $337,934 in AMT this year (29.8% of a $1,134,000 paper gain) — owed at filing, with no shares sold and no cash from them.
⚠ You'd owe about $337,934 in AMT even though you sold nothing and got no cash — the classic ISO trap. Make sure you can cover it, or exercise fewer shares. Much may come back later as a Minimum Tax Credit.
The paper gain (bargain element)
- Market value per share: $31.75
- Strike / exercise price per share: −$3.40
- Spread per share: $28.35
- × shares exercised: 40,000
- Bargain element (AMT preference): $1,134,000
- Cost to exercise (cash out of pocket): $136,000
The AMT math
- Your regular taxable income: $262,500
- + ISO bargain element: +$1,134,000
- = AMT income (AMTI): $1,396,500
- − AMT exemption (phased down from $140,200): −$0
- = AMT base: $1,396,500
- Tentative minimum tax (26% / 28% over $244,500): $386,130
- Your regular tax (for comparison): $48,196
- AMT you owe (TMT − regular tax, if positive): $337,934
Small early exercise, high salary, no AMT triggered
Estimated AMT triggered by this exercise: $0
Based on these numbers, this exercise doesn't trigger extra AMT — your tentative minimum tax stays at or below your regular tax. Exercising more shares could change that.
✓ No extra AMT at this share count — you're under the AMT crossover. Try a higher number of shares to find where AMT starts to bite before you exercise more.
The paper gain (bargain element)
- Market value per share: $6.20
- Strike / exercise price per share: −$0.95
- Spread per share: $5.25
- × shares exercised: 1,200
- Bargain element (AMT preference): $6,300
- Cost to exercise (cash out of pocket): $1,140
The AMT math
- Your regular taxable income: $214,600
- + ISO bargain element: +$6,300
- = AMT income (AMTI): $220,900
- − AMT exemption ($90,100): −$90,100
- = AMT base: $130,800
- Tentative minimum tax (26% / 28% over $244,500): $34,008
- Your regular tax (for comparison): $45,128
- AMT you owe (TMT − regular tax, if positive): $0
Examples are recomputed whenever the underlying rates or data change; the date above is the last recompute.
How ISO AMT works & data sources
When you exercise an ISO and hold the shares past year-end, the bargain element (market value at exercise − strike price) isn't regular income — but it's a positive AMT adjustment added to your Alternative Minimum Taxable Income (Form 6251). You then subtract the 2026 AMT exemption — $90,100 single, $140,200 married filing jointly — which, after the 2025 OBBB law, phases out at 50 cents per $1 of AMTI over $500,000 (single) / $1,000,000 (joint). AMT is 26% of the AMT base up to $244,500 and 28% above. You owe AMT only to the extent this tentative minimum tax exceeds your regular tax. Because you sold nothing, this can be a real bill with no cash to pay it — the ISO trap. The good news: AMT paid on the exercise usually becomes a Minimum Tax Credit (Form 8801) you recover in later years. A same-year sale removes the AMT preference (it becomes ordinary income instead), and your AMT cost basis differs from your regular basis when you finally sell.
Sources: IRS — Rev. Proc. 2025-32 (2026 AMT figures) · IRS — Form 6251 (AMT) · IRS — Pub. 525 (ISOs) · IRS — Topic 427
Frequently asked questions
I didn't sell anything — why would I owe tax?
Because AMT counts the paper gain on an exercise-and-hold. You have shares, not cash, but the bargain element still lands in your AMT income. That's why people get hit with a bill they can't easily pay.
How do I avoid or reduce the AMT?
Common tactics: exercise fewer shares (stay under the AMT "crossover"), exercise early when the spread is small, spread exercises across tax years, or do a same-year (disqualifying) sale so it becomes ordinary income instead. This tool shows the AMT for any share count — try different amounts.
Will I get the AMT back?
Often, over time. AMT paid because of the ISO exercise creates a Minimum Tax Credit (Form 8801) that offsets regular tax in future years. It's a timing cost, not always a permanent one — but you still need the cash now.
What does this tool leave out?
It estimates the AMT driven by your ISO exercise using your regular taxable income. Real AMT can be higher with other add-backs (like state taxes). It assumes a hold across year-end and ordinary income. Always confirm with a tax professional before exercising.