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AMT treatment of incentive stock option in CA Sched P (540)?

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Level 1

The question, below, was asked 5 years ago, but, in looking at the replies, I still do not see an answer with respect to treatment for 2013 stock sale on Form P (540). Replies were only addressing the negative amount that needed to be added to Form 6251, Line 17, not Form P (540), Line 9. 

Can someone answer the question posed, below, regarding whether a similar entry was needed on P (540), Line 9.


--- Original Question:

https://accountants-community.intuit.com/questions/888057-amt-treatment-of-incentive-stock-option-in...

"Taxpayer (TP) has two ISO related adjustments flowing thru Fed and California AMT forms (6251 and Sched P 540). Firstly in 2013, TP exercised ISO's from her employer and "did not" sell any of these shares acquired thru the ISO in 2013. This resulted in $77k of AMT tax preference - was an addition on line 14 on Form 6251. Secondly in 2013, TP sold shares of stock that she had previously acquired (thru exercise ISO's in 2012), but waited until 2013 to sell. In 2012 TP had to report $ 76k of AMT tax preference on 6251 and Sched P 540. Schedule P handled this $ 76k addition to AMT tax preference perfectly in 2012. Now fast forward to 2013. Taxpayer sold these shares in 2013(acquired in 2012) and resulting in different cost basis for regular tax than for AMT. The cost basis of these shares for AMT is higher (by the tax preference amount previously reported in 2012) and the capital gain lower by the same amount. Shouldn't Sched P 540 automatically pick up both AMT adjustments (going in opposite directions) in 2013. It picks up the $ 77k add tax preference item but not the <$ 76k> cap gain adjustment. Seems like this form should automatically pick up both - as the data is in the Proseries from Cap Gain Wks and Emp Stock Wks. Thanks for your comments."

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1 answer:

"Wanted to comment that for 2013 you probably should have something in Form 6521 AMT Form Line 17 Disposition of property (difference between AMT and Reg Tax Gain/Loss) for the ISO exercised in 2012 but sold in 2013. It might be a negative # to reduce AMT Taxable Income since the AMT for the shares exercised in 2012 was increasing AMT income. That is my understanding."

And another question, which was never answered:

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"Should this also show up on line 9 of Sched P (540)? Instructions for 6251 says to enter for "property (that) may have a different adjusted basis for the AMT". Instructions for Sched P (540) says to enter for "income producing property that has a different basis for AMT than for regular tax"

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1 Solution

Accepted Solutions
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Level 15

In Lacerte, even for 2013, when you view the form there is a link to the instructions at the top of that form. When all else fails, read the instructions fully - I think I have highlighted the key words:

Line 9 – Adjusted gain or loss

You will have an entry on this line only if you reported a gain or loss on California Schedule D (540) or Schedule D-1, federal Schedule D, federal Form 4797, or federal Form 4684, Casualties and Theft, for income producing property that has a different basis for AMT than for regular tax. Generally, if you reported a gain or loss from the sale or exchange of mutual funds, stocks, or bonds, you will not have an entry on this line.

To figure the amount to enter on this line:

Step 1 – Refigure the adjusted basis of the asset sold. Take into account any AMT adjustments you made this year or in previous years for depreciation, incentive stock options, circulation expenditures, pollution control facilities, research and experimental expenditures, and mining costs.

Step 2 – Refigure your gain or loss using the adjusted basis from Step 1.

Step 3 – Figure the difference between the AMT gain or loss and the regular tax gain or loss and enter the result on line 9. Enter the difference as a negative amount if: the AMT gain is less than the regular tax gain; the AMT loss is more than the regular tax loss; or you have an AMT loss and a regular tax gain.


ex-AllStar

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9 Replies 9
Highlighted
Level 15

In Lacerte, even for 2013, when you view the form there is a link to the instructions at the top of that form. When all else fails, read the instructions fully - I think I have highlighted the key words:

Line 9 – Adjusted gain or loss

You will have an entry on this line only if you reported a gain or loss on California Schedule D (540) or Schedule D-1, federal Schedule D, federal Form 4797, or federal Form 4684, Casualties and Theft, for income producing property that has a different basis for AMT than for regular tax. Generally, if you reported a gain or loss from the sale or exchange of mutual funds, stocks, or bonds, you will not have an entry on this line.

To figure the amount to enter on this line:

Step 1 – Refigure the adjusted basis of the asset sold. Take into account any AMT adjustments you made this year or in previous years for depreciation, incentive stock options, circulation expenditures, pollution control facilities, research and experimental expenditures, and mining costs.

Step 2 – Refigure your gain or loss using the adjusted basis from Step 1.

Step 3 – Figure the difference between the AMT gain or loss and the regular tax gain or loss and enter the result on line 9. Enter the difference as a negative amount if: the AMT gain is less than the regular tax gain; the AMT loss is more than the regular tax loss; or you have an AMT loss and a regular tax gain.


ex-AllStar

View solution in original post

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Level 1
Yes, I read the Form P(540) instructions as well, but, it was not 100% clear as it used the word "Generally" with respect whether line 9 would be filled in due to gain of stock. It would seem, based on Step 1, that there should be an adjusted basis for the asset (stock) sold, just as there was one entered on Form 6251, line 17.
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Highlighted
Level 1
Taxpayer (TP) in question may be in a similar situation, as presented in original question.

TP’s  accountant correctly entered a negative number on Form 6251, Line 17 to account for a difference in cost basis for a stock sale in 2017 (exercise/AMT trigger was in 2014), but, neglected to enter a similar negative amount on Form P(540), Line 9 to account for the same difference in cost basis on the CA state return. I believe that resulted in premature usage of -all- of TP's State AMT credit (which resulted from the exercise event/AMT trigger in 2014 when taxpayer exercised the ISOs).
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Highlighted
Level 15
You may be correct. Was TP a CA resident in 2012? Do you have a 2012 Schedule P?
Line 9 is sort a balance act for AMT income in the prior year. It should typically match 6251 line 17.
Preparer software may not have automatically carried over fed amounts to CA, like Lacerte so masterfully does.

ex-AllStar
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Level 1
Yes, that is what I thought as well. No, TP's accountant did not file Schedule P(540) for the two years in question, e.g., 2015 & 2017. Form 6251 was filed with appropriate negative number on line 17, but, it was never carried over to Form P(540), line 9.
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Level 15
Sounds like amended returns are in order

ex-AllStar
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Level 1
Yes, and TP is not happy about it. Hard to understand how this was missed in two different years, and why the preparers software did not properly carry over the federal amounts to CA.
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Level 1

Hello,

I have been reading this thread as it apply to my general situation. 

Here is my original questions: "In 2019 TurboTax - California State Tax Return section where/how do I enter the AMT cost basis adjustment for shares previously acquired from ISO? (i.e.  the adjustment for the "AMT vs Regular Tax" due to a Disposition of property like ISO share for which I reported and paid taxes differently between AMT and regular tax when I exercised in the past.

I read you information below in details and then I went back to 2019 TurboTax and I tried to follow your suggestions.

I selected "STATE TAXES" then "California" then "Credit and Taxes" and finally under the "Taxes" group I selected "Alternative Minimum Tax"

Once there on the "About California's Alternative Minimum Tax (AMT)" the page it clearly states:

+++++++++++++++++
AMT ensures that everyone pays a minimum amount of taxes every year, and doesn't allow for some common deductions
Select START AMT if you need to make any AMT-related adjustments including
- AMT net operating loss deduction
- Exercise or sale of incentive stock options (ISOs) <<< THIS IS MY CASE
- See Complet list [link]
+++++++++++++++++

Given that my situation is "Sale of incentive stock options (ISOs)" I select the button "Start AMT"
Then I skip the page to enter "AMT Net Operating Loss Deduction" and reach the page with "AMT Adjustments and Preferences"

However in this page there is NO ENTRY to adjust the AMT for the "Sale of incentive stock options (ISOs)"

I need to enter the adjustment for the "AMT vs Regular Tax" due to a "Disposition of property ISO shares (i.e. difference between AMT and regular tax gain or loss)"

Where do I enter this adjustemt?
The only options I have available are for
- Circulation expenditures
- Depletion
- Installment sales
- Intangible drilling costs
- Long-term contracts
- Loss limitations
- Mining costs
- Patron's adjustment
- Pollution control facilities
- Research and experimental
- Tax shelter farm activities
- Related Adjustment

Let me kno win either cases, If you know How to do it or not
Thank you very much.

Fastredcars

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Level 15

@fastredcars 

Hi there,

You’ve come to an Intuit site supporting tax professionals, and you may be looking for support as an individual taxpayer. Please visit the TurboTax Help site for support.

Cheers!

 


ex-AllStar
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