Question

In 2019, Liza exercised an incentive stock option that had been granted to her in 2016 by her employer, Weather Corporation. Liza acquired 100 shares of Weather stock for the option price of $190 per share. The fair market value of the stock at the date of exercise was $250 per share. Liza sells the stock for $340 per share in 2021. What is the amount of Liza’s AMT adjustment in 2019?

Answer 1

Answer:

$6,000

Explanation:

Since this sale and the exercise of the options didn't occur in the same year, we must make an adjustment for AMT.

In calculating alternative minimum taxable income (AMT), a taxpayer must add or subtract amounts from regular taxable income due to the different treatment of certain tax items for AMT.

In the year 2019:

market price of the stock = $250  

Liza acquired it at = $190,

Therefore,  

Gain = (Acquired price - market price of the stock) × no. of shares

        = ($250 - $190) × 100

        = $60 × 100 shares

        = $6,000

Liza needs to report this as income under AMT adjustments in 2019. This will be reported in for 6,251.