AMT Adjustments & Preferences | Stock Options and Tax Examples

Understand AMT adjustments and tax preferences with incentive stock options, long-term contracts and circulation-cost examples. Part 2 of this individual income tax series is for tax students and EA/CPA TCP candidates reviewing AMT concepts. The recording uses historical examples and a 2019 form; read the corrections below, especially the reversed expense-adjustment signs. How do adjustments affect AMTI? Start with regular taxable income, not the regular income-tax bill. Adjustments can increase or decrease alternative minimum taxable income (AMTI). A tax preference included under the applicable rules increases AMTI. Additional AMT is generally the excess of tentative minimum tax over the required regular-tax comparison amount. Examples and corrections • ISO example: 10,000 shares × ($18 value − $13 exercise price) = $50,000 AMTI adjustment, assuming qualifying ISOs and vested shares held beyond the exercise year. Regular basis is $130,000; AMT basis is $180,000. The $50,000 is not the tax bill. Contrary to 05:54, selling in the exercise year generally means no ISO AMT adjustment; regular-tax compensation may apply. • Four-year contract: the simplified $100,000 timing illustration gives +$25,000 in each of years 1–3 and −$75,000 in year 4, totaling zero. At 10:06, “five years” should be four. The example omits costs; contract revenue is not automatically taxable profit. • Circulation costs at 11:42–12:24: correct the slide and narration to +$60,000 in year 1, then −$30,000 in years 2 and 3. Starting from regular taxable income, $90,000 regular deduction less $30,000 AMT deduction requires a positive $60,000 addback. Later AMT-only deductions reduce AMTI. A regular-tax election for matching three-year treatment can eliminate the adjustment. Chapters 00:00 AMT Part 2 and study resources 01:10 AMTI and additional AMT overview 02:26 Recap of the prior example 03:04 Additional AMT adjustments 03:28 Employee stock-option illustration 04:42 ISO exercise and AMT 05:09 Adam's $50,000 ISO spread 06:26 Stock-price decline anecdote 07:13 Regular-tax and AMT stock bases 07:50 Long-term contract adjustments 09:29 Four-year contract timing example 11:18 Circulation expenditures 11:42 $90,000 example: see sign correction 12:32 What are AMT preferences? 13:07 Private activity bond interest 13:33 Depletion and legacy depreciation 13:57 Combining adjustments on Form 6251 14:40 Next lesson: AMT exemption Further clarifications (September 2026) • An out-of-the-money option can have time value even without intrinsic value. ISO treatment differs from nonstatutory options; vesting, disposition and other requirements matter. • Percentage-of-completion treatment for AMT has exceptions, including home construction contracts. Eligibility for completed-contract treatment for regular tax must be established separately. • At 07:58, the former corporate AMT repeal is historical. A different 15% corporate AMT on adjusted financial statement income applies to certain large corporations for tax years beginning after 2022. This video teaches individual AMT adjustments. • Private activity bonds are generally state/local governmental issues financing private uses. Only specified interest is an AMT preference, with exceptions. Depletion and pre-1987 depreciation also require the applicable rules; not every item is an automatic addback. • The opening 28%-minus-$3,726 shortcut is not the 2019 formula. For ordinary income in 2019, the breakpoint is $194,800 and the shortcut subtracts $3,896; MFS uses $97,400/$1,948. Capital gains can require a separate calculation. Use current-year amounts for current work. • The closing worksheet's $217,248 differs from the form's $217,245. The recording attributes this to rounding, but the difference is not reconciled here. Prior rental/depreciation facts are incomplete; the displayed total is not a verified current-return computation. The $10,000 tax addback is historical and depends on the deduction actually taken. Official references Form 6251 instructions: https://www.irs.gov/instructions/i6251 2019 instructions: https://www.irs.gov/pub/irs-prior/i62... Stock-option rules: https://www.irs.gov/publications/p525 Bond interest: https://www.irs.gov/publications/p550 Corporate AMT: https://www.irs.gov/inflation-reducti... Continue learning Individual AMT series:    • Individual AMT: Adjustments, Exemptions & ...   Individual Income Tax Course:    • Individual Income Tax Course | Tax Course ...   Lectures and practice resources: https://farhatlectures.com #AlternativeMinimumTax #IncentiveStockOptions #Form6251