Do I owe tax when I exercise ISOs?

Not for regular income tax if you exercise and hold. But the bargain element (market value minus strike price) is an Alternative Minimum Tax preference — so exercising and holding can trigger a large AMT bill even though you sold nothing and received no cash. That's the classic ISO trap.

How is ISO AMT calculated in 2026?

The bargain element is added to your AMT income. You subtract the 2026 AMT exemption ($90,100 single / $140,200 joint), which phases out at 50 cents per dollar of AMTI over $500,000 single / $1,000,000 joint after the OBBB changes. AMT is 26% up to $244,500 of AMT base and 28% above. You owe AMT only if that tentative minimum tax exceeds your regular tax.

Can I get the AMT back?

Often, over time. AMT paid because of the ISO exercise creates a Minimum Tax Credit (Form 8801) that can reduce your regular tax in future years when your regular tax exceeds your tentative minimum tax.

Myth vs. fact · US 2026

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

ISOs you'll exercise (shares)

Strike / exercise price per share

Current market value (409A) per share

Filing status

Your regular taxable income this year (after deductions)

Estimated AMT triggered by this exercise

The paper gain (bargain element)

The AMT math

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.

✅ Rules & 2026 figures verified as of July 19, 2026 — IRS Rev. Proc. 2025-32 (2026 AMT exemption $90,100/$140,200, threshold $500k/$1M, 28% breakpoint $244,500); IRS Form 6251; Pub. 525; Topic 427 · Estimate, not tax advice.

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.