The alternative minimum tax (AMT) credit is a reduction given to individuals who have paid alternative minimum tax in previous years. Exercising Incentive Stock Options (ISOs) often triggers AMT. Thus anyone who has exercised ISOs in years past may be eligible for AMT credits.

How to claim AMT Credit?

This primer addresses how to calculate AMT credit for ISO exercise transactions, then utilize the credit to reduce future tax obligations.

AMT Credit Carryforward: How It Works

When you pay Alternative Minimum Tax (AMT) due to exercising ISOs, you generate an AMT credit. If you can’t use that credit right away, it carries forward indefinitely: there is no expiration. The credit can only be used in years when your regular tax exceeds your tentative minimum tax, and it can only offset that difference. As a result, some years you may recover all of your remaining credit, some years only a portion, and some years none at all. For a detailed, multi‑year walkthrough showing how this plays out in practice, see the Complex Example below on this page.

How Much AMT Credit Can You Claim?

The amount of AMT credit you can use in a given year equals the excess of your regular tax liability over your tentative minimum tax (the AMT you’d owe before comparing it to regular tax).

In simplified terms:
AMT Credit Used = Regular Tax − Tentative Minimum Tax (only when Regular Tax > Tentative Minimum Tax)

If your regular tax is less than or equal to your tentative minimum tax, you cannot use any AMT credit that year. The total credit available to you is the AMT you paid in prior years minus any credits already claimed, and you draw it down over time as allowed by this comparison.

Did you pay AMT?

There are a number of ways to trigger AMT, but this primer will focus on ISO exercise.

When calculating AMT, your taxes are calculated in two ways:

1) Standard Tax

2) Alternative Minimum Tax

If your Alternative Minimum Tax calculation is higher than the Standard Tax version, you will owe AMT. This most commonly occurs after an ISO exercise. Check out ESO Fund's AMT Calculator for more.

Below is a table on how options are taxed via Alternative Minimum Tax.

Typically, you will know whether or not you paid AMT in a calendar year. If you are in doubt, you can look back at old tax returns to confirm whether or not you paid AMT. Once you confirm how much AMT you paid, you can now begin the AMT credit process.

2026 AMT Rates and Exemption Amounts

For the 2026 tax year, the Alternative Minimum Tax (AMT) uses the following inflation‑adjusted figures:

AMT Exemption Amounts (2026)

• Single filers: $90,100
• Married filing jointly: $140,200

AMT Tax Rates (2026)

• 26% on the first portion of alternative minimum taxable income (AMTI)
• 28% on AMTI above $244,500 (or $122,250 for married filing separately)

AMT Exemption Phase‑Out Thresholds (2026)
The AMT exemption begins to phase out when AMTI exceeds:

• $500,000 for single filers
• $1,000,000 for married filing jointly

These amounts are adjusted annually by the IRS for inflation.

Claiming AMT Credit (Form 8801)

In order to claim your AMT credit, you will need to file IRS form 8801. You typically will not be able to claim 100% of your AMT credit right away due to limitations. Recall that when calculating AMT you calculate your tax in two ways. You are only able to claim AMT Credits based on the difference between your Standard Tax and Alternative Minimum Tax in any given year.

Simple example

Let's say you exercised ISOs and your AMT exceeded your Standard Tax by $50,000. This means you owed $50,000 in AMT for that tax year. Now in a subsequent tax year, with no ISO exercise, your Standard tax exceeds your AMT by $30,000.

You will be able to claim $30,000 in AMT Credit for that year. This leaves the remaining $20,000 to be claimed later on.

Complex Example

As a sample illustration, we’ll follow a typical ISO transaction from exercise through final sale and calculate what happens in 4 different scenarios.

What This Example Shows

• Best case (stock price rises materially): you can recover most or all of your AMT credit within a few years after selling.
• Flat outcome (sale ≈ FMV at exercise): you still recover your AMT credit, but typically over multiple years via carryforwards.
• Downside scenarios: if the stock falls (even below your exercise price), the mechanics of AMT vs. regular tax can delay or limit annual recovery, pushing more credit into future years.
• Key takeaway: AMT credits are never lost, but when and how fast you recover them depends on stock performance and your regular‑vs‑AMT tax profile each year.

Assumptions

• ISO grant allowing the purchase of 100,000 shares at an strike price of $1 per share.
• Fair Market Value (FMV) of the shares at the time of the exercise is $6 per share.
• Final Sale of the shares takes place 2 years after exercise so all 4 examples are ISO qualified dispositions triggering LTCG (Holding Period Requirement for Long Term Capital Gains (LTCG) is for the date of the final sale to be at least 2 years from the ISO grant date and at least 1 year from the date of the exercise.)
• This hypothetical tax payer is at the 20% LTCG and 28% AMT rates and has no offsetting income, AMT exemptions/phaseouts, or deductions other than this ISO transaction.
• We disregard the 3.8% net investment income tax to simplify the tax rate at 20% for LTCG.

The valuation spread at the time of exercise is $5 per share (FMV – Strike Price). This results in $500,000 of AMT Income while regular tax income is $0 because ISO exercises are not subject to regular tax. So in the tax year of the ISO exercise, $140,000 of AMT tax will be due using the AMT rate of 28%. Paying this tax also raises the AMT Tax Cost Basis to $600,000 (100,000 x $6 FMV) whereas the regular tax cost basis remains at the exercise cost of $100,000 (100,000 x $1 Strike Price). This also results in $140,000 in AMT credit to be utilized in tax year when this tax payer’s regular tax is higher than AMT. In this example, we assume that will take place in the year of the sale.

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Conclusions

Many tax professionals describe AMT tax as a timing tax because of the AMT credit offset in future years. As illustrated above, the AMT credit reversal really depends on many contributing factors in the year of sale:

• First, there must be regular capital gains. The AMT reversing adjustment is really a AMT capital gain/loss adjustment because of the tax basis difference between regular and AMT. Without regular capital gain, the reversing AMT basis adjustment will only generate an AMT capital loss carryover, which does not lower the current year AMT liability.
• Second, regular tax must be higher than AMT tax. The bigger the gap, more AMT credit will free up.Timing is everything. To maximize AMT credit offset, we want other realized capital gains. We also want other ordinary income, which helps create a bigger gap between regular and AMT simply because the top rates for regular and AMT are 37% and 28% respectively.
• Lastly, there are many other items (income, deductions, credits, etc) on the returns that may affect the tax calculations, which is beyond the scope of this primer.

This content is for general information purposes only and should not be used as a substitute for consultation with professional advisors such as Leung, Louie, & Co. LLP whom ESO Fund thanks for contributing the information behind this post.

For more information on tax savings, please contact us below. For help funding exercise related taxes, check out how ESO Fund can cover your taxes risk-free.

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Written by Jordan Long, Marketing Lead at ESO Fund