ISO tax calculator 2026: AMT at exercise, gain at sale
Incentive stock options hide their tax in the alternative minimum tax. This tool separates the two events: the AMT you may owe at exercise, and the capital gain at sale.
Updated November 4, 2026 Sources and methodology
Exercise year and sale year
At exercise. Regular tax: nothing. AMT: the spread between the share price and your strike (the bargain element) is added back to alternative minimum taxable income under Code section 56(b)(3). The 2026 AMT exemption is $90,100 for single filers and $140,200 for married filing jointly, phased out at 50 cents per dollar above $500,000 / $1,000,000 of AMTI. Tentative minimum tax is 26% up to $244,500 of AMT base, then 28%.
At sale. A qualifying disposition converts the whole gain over the strike into long-term capital gain (0/15/20% depending on income). For AMT purposes your basis is the exercise-date fair market value, so the pre-exercise appreciation is taxed once through the AMT system and the rest at capital-gain rates.
How to read the results
- Bargain element: what AMT sees. It is not cash you received.
- AMT due at exercise: cash you must fund from other savings, since no withholding occurs.
- AMT credit generated: carried forward and recovered against future regular tax.
- Capital gain at sale: measured from the strike for a qualifying disposition.
- Net proceeds: sale value minus exercise cost minus both taxes.
Why the exercise amount matters more than the spread
AMT is a parallel system, not a surtax. A small spread on top of a high salary usually produces zero AMT because your regular tax already exceeds the tentative minimum tax. The trap is the opposite case: a large exercise in a low-income year, or an exercise followed by a price collapse. You owe AMT on paper gains and hold shares worth less than the tax. That is why many advisors cap exercises at the AMT crossover point, which the ISO AMT calculator solves for directly.
Frequently asked
Do ISOs create regular tax at exercise?
No. Incentive stock options are not subject to ordinary income tax or withholding when you exercise them, as long as you hold the shares long enough to satisfy the holding-period rules. The risk is the alternative minimum tax: the bargain element is an AMT preference item and is taxed in the year of exercise even though you have not sold anything.
What makes a disposition qualifying?
You must hold the shares more than 2 years after the grant date and more than 1 year after exercise. A qualifying disposition turns the entire gain over the strike price into long-term capital gain. If you sell earlier, it becomes a disqualifying disposition: the bargain element is ordinary income in the sale year.
Is the AMT I pay lost money?
It is a pre-payment, not a forfeit. AMT paid on a deferral item generates a minimum tax credit that you can use in later years against regular tax above the AMT floor. The credit can take years to recover if your income stays flat, which is why the timing of an ISO exercise matters as much as the amount.
Sources. AMT exemptions, phaseout thresholds and the 28% breakpoint: IRS Rev. Proc. 2025-32 (2026). Capital-gain thresholds: same document, section 1(j)(5). Holding periods: Code section 422. Modeling assumes the standard deduction for regular tax, no other AMT adjustments, and no prior AMT credit balance.