Alternative Minimum Tax (AMT): Who Pays It and How It Works

Frequently Asked Questions

• The honest answer is that most people do not know they owe the AMT until their tax software tells them. The AMT is a parallel tax system that runs alongside the regular income tax. When you prepare your return, the software (or your tax preparer) calculates your tax two ways: the regular way and the AMT way. If the AMT calculation produces a higher tax than the regular calculation, you pay the difference as additional tax. There is no separate bill from the IRS. It just shows up on your return as a higher tax liability than you expected.
• The AMT calculation starts with your regular taxable income and then adds back certain deductions and preferences. The biggest add-backs include state and local tax deductions (SALT), which are capped at $10,000 under current law but were unlimited before the TCJA. If the TCJA extended through 2034 by the One Big Beautiful Bill Act, the unlimited SALT deduction returns, and more people could find themselves owing AMT because their regular tax would be lower but their AMT income stays high. Other common AMT adjustments include certain itemized deductions like miscellaneous deductions, tax-exempt interest from private activity bonds, and the difference between the exercise price and fair market value of incentive stock options at exercise.
• After adding back these items, you subtract the AMT exemption amount. For 2025, the exemption is $88,100 for single filers and $137,000 for married filing jointly. These exemption amounts are indexed for inflation and would be similar or slightly higher in 2026 if the TCJA is extended. If the TCJA expires, the exemption amounts drop significantly (to roughly $60,000 for single and $95,000 for married, adjusted for inflation), which would pull millions of additional taxpayers into the AMT.
• The AMT has two tax rates: 26% on the first $239,100 of AMT income above the exemption (for 2025, married filing jointly) and 28% on everything above that. These rates are lower than the top regular income tax rates, but because the AMT disallows certain deductions, the taxable base is wider. The result is that people who rely heavily on deductions that the AMT disallows end up paying more under the AMT system even though the rates are lower.
• Certain red flags suggest you might be subject to the AMT. If you live in a high-tax state like California, New York, or New Jersey and you have a large SALT deduction, you are in AMT territory. If you exercised incentive stock options during the year, even if you did not sell the stock, the “phantom income”. From the exercise could trigger AMT. If you have significant income from private activity municipal bonds, that interest is tax-free for regular tax purposes but taxable for AMT. And if you have a large number of personal exemptions (which would come back if the TCJA expires), those exemptions reduce regular tax but not AMT income.
• The best way to know if you owe the AMT before filing is to run a projection using tax software. TurboTax, H&R Block, and most professional tax software include AMT projections. You can input your expected income and stock option exercises and see whether the AMT kicks in. If you exercised incentive stock options during the year, run this projection before December 31 because you may want to exercise fewer options or sell some shares before year-end to manage your AMT exposure. Once you cross into AMT territory, each additional dollar of AMT preference income costs you 26 or 28 cents in additional tax.
• Form 6251 is where the AMT calculation lives on your tax return. If you owe AMT, the amount appears on Form 1040 Schedule 2, line 1, and flows to Form 1040 line 17. Your tax preparer should be able to explain exactly which items triggered the AMT and how much each item contributed. If the AMT surprise is large, it might be worth consulting with a tax advisor about strategies to minimize it in future years, such as timing stock option exercises, managing capital gains, or adjusting your withholding to account for the expected AMT liability.
• Historically, the AMT affected roughly 5 million taxpayers per year before the TCJA, with the number growing as inflation pushed more people above the old exemption thresholds. The TCJA reduced that to fewer than 200,000 taxpayers by dramatically increasing both the exemption and the phase-out thresholds. If the TCJA extended through 2034 by the One Big Beautiful Bill Act, the Congressional Budget Office estimates that AMT-affected filers could jump back to 7 million or more, depending on how the returning personal exemptions and unlimited SALT deductions interact with the lower AMT exemption.
• If your tax preparer tells you that you owe AMT, ask them to show you which specific items caused it and how much each item contributed. Understanding the drivers helps you plan for the following year. If the AMT was caused primarily by a one-time event like exercising stock options, your AMT exposure in future years might be minimal. But if it was caused by recurring items like large SALT deductions, you should expect to owe AMT again unless your income or deductions change significantly.
• The AMT exemption amounts are adjusted annually for inflation, which provides some protection against bracket creep. But the AMT tax rates (26% and 28%) are not indexed, and neither are many of the preference items. As incomes rise with inflation but the AMT rates stay fixed, the likelihood of owing AMT on recurring items like SALT gradually increases over time for taxpayers in high-tax states.
• One often-overlooked AMT trigger is the standard deduction itself. Under the regular tax system, the standard deduction reduces your taxable income. Under the AMT, there is no standard deduction. Instead, the AMT exemption serves a similar function but with different amounts. For most taxpayers who take the standard deduction, the AMT exemption is high enough that AMT is not an issue. But under the pre-TCJA rules with a lower exemption, even standard deduction filers could potentially owe AMT in unusual circumstances.
• For retirees, the AMT can appear unexpectedly when large Roth conversions or required minimum distributions push income above the AMT threshold. A retiree who converts $200,000 from a traditional IRA to a Roth IRA adds that amount to both regular and AMT income. Combined with Social Security income and SALT deductions, the conversion could trigger AMT that was not anticipated.

• Capital gains themselves are not an AMT preference item, but they can push you into the AMT indirectly. Here is how it works. Long-term capital gains are taxed at the same preferential rates (0%, 15%, or 20%) under both the regular tax system and the AMT system. So a $50,000 long-term capital gain does not get taxed at a higher rate under the AMT. However, that $50,000 in additional income raises your overall income level, which can cause the AMT exemption to phase out and make your other AMT adjustments more costly.
• The AMT exemption phases out at 25 cents for every dollar of AMT income above certain thresholds. For 2025, the phase-out begins at $626,350 for single filers and $1,252,700 for married filing jointly. Each dollar of income above those thresholds reduces your exemption by 25 cents. A large capital gain that pushes your income into the phase-out range effectively increases your AMT liability even though the capital gain itself is not an AMT preference item. This interaction catches some high-income taxpayers off guard because they assumed capital gains were “safe”. From AMT.
• Short-term capital gains, which are gains on assets held for one year or less, are taxed as ordinary income under both systems. Since short-term gains are treated the same way in both the regular and AMT calculations, they do not directly trigger AMT. But like long-term gains, they increase your overall income and can push other items into AMT territory.
• The sale of property with different AMT and regular tax basis amounts can create an AMT capital gain that differs from your regular capital gain. This most commonly happens with incentive stock options. When you exercise ISOs and later sell the stock, your regular tax basis is the exercise price (what you paid for the stock), but your AMT basis includes the bargain element (the difference between the exercise price and fair market value at exercise, which you already paid AMT on). So your AMT gain on the sale is smaller than your regular tax gain. If you paid AMT when you exercised the options, the difference in basis reduces your AMT on the sale and contributes to the AMT credit carryforward.
• Real estate sales can also create AMT capital gain differences if you used accelerated depreciation methods that differ between the regular and AMT systems. For commercial property placed in service before 1999, the AMT required straight-line depreciation over a longer recovery period, while the regular tax allowed accelerated depreciation. The difference in accumulated depreciation means your AMT basis could be higher than your regular tax basis, resulting in a smaller gain for AMT purposes. This is rare for recently acquired property but can still apply to long-held real estate assets.
• If you are planning a large asset sale and are concerned about AMT, model the transaction in your tax software before completing the sale. A capital gain of $300,000 might not trigger AMT on its own, but combined with $25,000 in SALT deductions, $15,000 in private activity bond interest, and an AMT exemption phase-out, the total AMT exposure could be meaningful. Timing the sale across two tax years, harvesting capital losses to offset gains, or exercising incentive stock options in a different year than the sale can all help manage the AMT impact.
• One strategy that helps with AMT and capital gains is the use of Qualified Opportunity Zone investments. If you reinvest capital gains into a qualified opportunity zone fund within 180 days, you can defer the gain and potentially reduce it. The deferred gain is not included in your income until the earlier of the date you sell the QOZ investment or December 31, 2026 (under current rules). Since QOZ gains are deferred from both regular tax and AMT, this strategy can reduce AMT exposure in the year of the original sale. Check with a tax advisor to see if a QOZ investment makes sense for your situation.
• Collectibles like art and precious metals are taxed at a maximum capital gains rate of 28% under both the regular tax and AMT systems. This is higher than the 15% or 20% rate for most other long-term capital gains. The collectibles rate is the same under AMT and regular tax, so selling a coin collection for a $100,000 gain does not create an AMT-specific issue. But the $100,000 in income could push your other AMT adjustments above the threshold, just like any other form of income.
• Section 1250 gain from the sale of depreciated real property has its own wrinkle. The portion of the gain attributable to depreciation is taxed at a maximum rate of 25% (unrecaptured Section 1250 gain). Under the AMT, the depreciation amount might differ from the regular tax amount if different depreciation methods were used. This can create a small AMT adjustment on the sale of rental property or commercial real estate that used accelerated depreciation methods before 1999.
• Capital losses can offset capital gains dollar for dollar under both the regular tax and AMT systems. If you have $80,000 in capital gains and $50,000 in capital losses, your net capital gain is $30,000 under both systems. The net capital loss deduction ($3,000 per year against ordinary income) is also the same under both systems. So tax-loss harvesting works equally well for regular tax and AMT purposes, making it a good strategy regardless of your AMT status.
• If you are subject to the Net Investment Income Tax (NIIT) of 3.8% on investment income above $200,000 (single) or $250,000 (married filing jointly), that additional tax applies on top of both the regular capital gains rate and any AMT. The NIIT is not an AMT preference item. It is a separate surtax under Section 1411. So a high-income taxpayer could pay 20% capital gains rate plus 3.8% NIIT plus AMT on other items, resulting in an effective federal rate above 25% on their investment income. State capital gains taxes, where applicable, push the total rate even higher.
• Installment sales of business assets can create AMT differences if the gain is recognized on a different schedule for regular and AMT purposes. This is uncommon with modern tax rules but can still apply to installment sales of personal property where AMT depreciation adjustments existed on the original asset.

• Yes, through the AMT credit carryforward. If you paid AMT in a prior year because of timing differences (items that are taxed differently under AMT and regular tax but eventually equalize), you may be eligible for a credit in future years when your regular tax exceeds your tentative minimum tax. This credit is claimed on Form 8801 (Credit for Prior Year Minimum Tax) and can reduce your regular tax liability in subsequent years. The credit does not expire, so you can carry it forward indefinitely until you use it up.
• The most common source of AMT credits is the exercise of incentive stock options. When you exercise ISOs, the bargain element (fair market value minus exercise price) is included in your AMT income even though it is not included in your regular taxable income. You pay AMT on this phantom income in the year of exercise. When you eventually sell the stock, your AMT basis is higher than your regular tax basis (because you already included the bargain element in AMT income), which means your AMT gain is smaller than your regular gain. The difference generates an AMT credit that can offset regular tax in the year of sale or future years.
• Here is a concrete example. In 2023, you exercised 5,000 ISOs with an exercise price of $10 and a fair market value of $30. The bargain element is $100,000 ($20 times 5,000 shares). This $100,000 was added to your AMT income, and you paid approximately $26,000 in AMT (at the 26% rate). In 2025, you sell the shares for $35 each. Your regular tax gain is $125,000 ($35 minus $10, times 5,000), and your AMT gain is only $25,000 ($35 minus $30, times 5,000). The $100,000 difference in gains contributes to your AMT credit carryforward. If your regular tax in 2025 exceeds your tentative minimum tax, you can use some or all of the approximately $26,000 AMT credit to reduce your 2025 tax.
• Not all AMT payments generate a credit. AMT caused by “exclusion items”. Like state and local tax deductions, miscellaneous deductions, and personal exemptions does not generate a credit because these are permanent differences, not timing differences. The deductions disallowed under AMT are permanently lost. They do not reverse in a future year. Only AMT caused by “deferral items”. Like ISO exercises, depreciation timing differences, and certain installment sale adjustments generates credits that can be recovered.
• The AMT credit is limited each year to the excess of your regular tax over your tentative minimum tax. If your regular tax is $40,000 and your tentative minimum tax is $35,000, you can use up to $5,000 of your AMT credit carryforward that year. If your credit carryforward is $20,000, you would use $5,000 and carry the remaining $15,000 to the next year. In years when you are still subject to AMT (tentative minimum tax exceeds regular tax), you cannot use the credit at all because there is no excess regular tax to offset.
• Some people accumulate large AMT credit carryforwards, especially those who exercised stock options during the tech boom of the late 1990s and early 2000s. A person who paid $50,000 in AMT in 2000 due to ISO exercises and has been carrying the credit forward for over 20 years might still have a significant unused balance. There was briefly a provision in the tax code (for tax years 2007-2012) that allowed taxpayers to claim a refundable AMT credit, meaning the IRS would actually send you a check for part of your unused credit even if you did not have enough regular tax to offset. That provision has expired, and the credit is now only usable against future regular tax liability.
• If you have AMT credits from prior years and are not sure how much remains, check your prior year tax returns, specifically Form 8801. The credit carryforward should be listed on the form. If you switched tax preparers or software at some point, the credit may not have been carried forward correctly. This is one of the most commonly missed carryforward items in tax preparation. If you think you may have unused AMT credits, it is worth having a tax professional review your prior returns to make sure nothing was overlooked.
• The process for claiming AMT credits is straightforward but requires careful tracking across multiple years. Each year, you file Form 8801 along with your regular return. The form calculates your tentative minimum tax for the current year, compares it to your regular tax, and determines how much of your accumulated credit you can use. Any unused credit carries forward to the next year. There is no time limit on the carryforward. Credits from 20 years ago can still be used today as long as they were properly reported on prior year returns.
• Tax software handles the AMT credit carryforward automatically as long as you use the same software year after year and import your prior year data. If you switch from TurboTax to H&R Block, or from one CPA to another, make sure the AMT credit carryforward is properly transferred. Missing or incorrect carryforward data is one of the most common errors in AMT credit calculations. Bring your prior year Form 8801 to your new preparer so they can verify the credit balance.
• In some cases, you can speed up the recovery of your AMT credit by adjusting your tax situation. If your regular tax is consistently close to your AMT, consider whether reducing an AMT preference item (like paying down your mortgage to eliminate the second-home interest deduction, or selling private activity bonds) could tip the balance and let you use more of your credit. The goal is to create a gap between your regular tax and your AMT so the credit has room to apply.
• For executives and employees with large ISO-generated AMT credits, the credit recovery can take many years. Someone who paid $80,000 in AMT from ISO exercises and can only use $5,000 to $10,000 of credit per year would need eight to sixteen years to fully recover the credit. During that time, the purchasing power of the credit erodes due to inflation since the credit is a dollar-for-dollar offset with no inflation adjustment. This time value of money loss is a real cost of paying AMT, even though the credit is theoretically fully recoverable.

• If the Tax Cuts and Jobs Act extended through 2034 by the One Big Beautiful Bill Act as currently scheduled, the AMT would become a much bigger issue for millions of taxpayers. The TCJA made two major changes to the AMT that dramatically reduced the number of people who owe it: it increased the AMT exemption amounts, and it raised the income thresholds at which the exemption phases out. If those changes revert, the AMT exemption drops and the phase-out begins at much lower income levels, pulling an estimated 7 to 10 million additional taxpayers into the AMT.
• Under the TCJA, the AMT exemption for 2025 is $88,100 for single filers and $137,000 for married filing jointly. If the TCJA expires, these would revert to roughly $60,000 for single and $95,000 for married (adjusted for inflation from the pre-TCJA levels). That is a reduction of about $28,000 for single filers and $42,000 for married couples. More of your income would be subject to AMT rates, increasing the likelihood that the AMT calculation produces a higher tax than the regular calculation.
• The phase-out thresholds drop even more dramatically. Under the TCJA, the exemption does not start phasing out until income reaches $626,350 (single) or $1,252,700 (married). Pre-TCJA, the phase-out began at approximately $160,000 for single and $240,000 for married. At those lower thresholds, a married couple earning $340,000 would lose $25,000 of their exemption ($340,000 minus $240,000, divided by 4), reducing their effective exemption from $95,000 to $70,000. Under current TCJA rules, that same couple would retain their full $137,000 exemption.
• The interaction with the SALT deduction makes the TCJA expiration particularly messy for AMT purposes. Under the TCJA, the SALT deduction is capped at $10,000, which limits one of the biggest AMT adjustment items. If the TCJA expires, the SALT cap goes away and taxpayers can deduct unlimited state and local taxes for regular tax purposes. But SALT is an AMT preference item, so the full SALT deduction gets added back for AMT. A taxpayer in New York claiming $40,000 in SALT deductions would see their regular tax drop significantly but their AMT income remain high, likely triggering a large AMT liability.
• The return of the personal exemption would add another AMT trigger. Under the TCJA, personal exemptions were suspended. If the TCJA expires, each personal exemption (estimated at roughly $5,000 per person for 2026) would reduce regular taxable income but would be added back for AMT purposes. A family of five claiming $25,000 in personal exemptions would see a significant reduction in regular tax, but their AMT income would stay the same, making it more likely that AMT exceeds regular tax.
• Conversely, the return of the higher standard deduction versus the pre-TCJA lower standard deduction would push more people toward itemizing, which in turn makes the AMT more likely to apply because itemized deductions are where most AMT preference items live. A taxpayer who takes the standard deduction has virtually no AMT exposure because none of the standard deduction is an AMT adjustment. But once you itemize and start claiming SALT, mortgage interest on second homes, and miscellaneous deductions, the AMT calculation becomes relevant.
• For 2026 tax planning, taxpayers in high-tax states should run AMT projections under both scenarios (TCJA extended and TCJA expired) to understand their potential exposure. If the TCJA expires, strategies like making the most of pre-tax retirement contributions, deferring income, and avoiding ISO exercises in the same year as large SALT deductions become more important. A tax advisor can model your specific situation and recommend adjustments to minimize AMT under either legislative outcome.
• The elimination of the $40,000 SALT cap would be particularly effective. A taxpayer in California earning $250,000 and paying $22,000 in state income tax plus $12,000 in property tax would deduct $34,000 in SALT for regular tax purposes (instead of the current $40,000 cap). That $34,000 SALT deduction reduces their regular tax significantly, but under AMT, the entire $34,000 is added back. The gap between regular tax and AMT widens, making it almost certain that AMT applies.
• Mortgage interest on second homes is another AMT trigger that would return if the TCJA expires. Under current law, the mortgage interest deduction is limited to loans up to $750,000 on your primary and one second residence. Before the TCJA, the limit was $1 million, and interest on up to $100,000 of home equity debt was also deductible. If those higher limits return, some of that additional interest (particularly on home equity debt not used to acquire or improve the home) would be an AMT preference item, further widening the gap between regular tax and AMT for affected taxpayers.
• Tax-exempt interest from private activity municipal bonds is an AMT preference that exists regardless of the TCJA status. But the volume of private activity bonds has increased in recent years, particularly for affordable housing and airport financing. Investors who hold these bonds in their portfolio should be aware that the interest, while exempt from regular federal tax, is fully taxable for AMT purposes. A taxpayer holding $500,000 in private activity bonds generating 4% interest adds $20,000 to their AMT income annually.
• Taxpayers who are already subject to the AMT under current TCJA rules would face an even larger AMT liability if the TCJA expires because the lower exemption and lower phase-out thresholds increase the AMT calculation. Someone currently paying $3,000 in AMT might see that jump to $15,000 or more. The combination of lower exemptions, lower phase-out thresholds, returning personal exemptions, unlimited SALT deductions, and expanded mortgage interest deductions creates a perfect storm for AMT liability in high-tax states. If your household income exceeds $200,000 and you live in California, New York, New Jersey, Connecticut, or another high-tax state, you should model the TCJA expiration scenario with your tax advisor before year-end 2025 so you can adjust your withholding, estimated payments, and financial planning accordingly.
• For financial planning purposes, if you expect the TCJA to expire, consider accelerating deductions into 2025 where possible and deferring income into 2026. This counterintuitive approach works because your 2025 deductions reduce regular tax under the current favorable AMT rules, while in 2026 the same deductions might be disallowed by the AMT anyway. Timing medical procedures, prepaying property taxes (where allowed), and bunching charitable contributions into 2025 can all help minimize the combined impact of the TCJA expiration on your total tax liability across both years.

• Not necessarily. Avoiding ISO exercises entirely to prevent AMT can mean leaving significant money on the table. The better approach is to manage the timing and quantity of your ISO exercises to stay below the AMT threshold or to minimize the AMT you owe. A well-planned ISO exercise strategy can let you benefit from the favorable long-term capital gains treatment on ISO shares while keeping your AMT exposure manageable.
• Here is the basic math. When you exercise ISOs, the bargain element (fair market value at exercise minus the exercise price) is included in your AMT income. If your exercise price is $5 and the fair market value is $25, the bargain element is $20 per share. Exercise 10,000 shares and you add $200,000 to your AMT income. If your regular AMT exemption is $88,100 and your other AMT income (after exemption) results in, say, $50,000 of tentative minimum tax, that $200,000 in bargain element could generate an additional $52,000 in AMT (at 26%). That is real money, and it is due in April of the following year whether or not you sell the shares.
• The risk is amplified if the stock price drops between the exercise date and the tax due date. This is exactly what happened to thousands of employees during the 2000-2001 dot-com crash. People exercised ISOs when their company’s stock was at $80, adding a large bargain element to their AMT income. By the time their tax return was due in April, the stock had fallen to $10 or less. They owed AMT on phantom income based on a stock price that no longer existed, and they could not sell the depreciated shares for enough to cover the tax bill. Some people owed more in AMT than the total current value of their shares.
• The safest strategy is to exercise ISOs gradually, doing what is sometimes called an “AMT spread”. Across multiple years. Instead of exercising all your vested options in one year, exercise enough each year to stay just under the AMT threshold. If your AMT exemption is $88,100 and your other income is $150,000 in regular taxable income with limited AMT adjustments, you might be able to exercise ISOs with a bargain element of up to $40,000 to $60,000 without triggering AMT. Your tax preparer can calculate the exact amount based on your full tax picture.
• Another strategy is to exercise and sell in the same year (a “disqualifying disposition”). If you exercise ISOs and sell the shares within the same calendar year (or within one year of exercise or two years of grant), the sale is treated as a disqualifying disposition. The bargain element is taxed as ordinary income for regular tax purposes, and there is no AMT adjustment. You lose the favorable long-term capital gains treatment, but you also completely avoid the AMT issue. For employees at companies with volatile stock prices, this eliminates the risk of owing AMT on stock that later declines.
• The exercise-and-hold strategy (exercising ISOs and holding the shares for more than one year from exercise and two years from grant to qualify for long-term capital gains treatment) is the approach that triggers AMT. If you plan to hold the shares, you need to plan for the AMT liability and have cash available to pay it. Do not assume you can sell enough shares to cover the AMT because selling shares within the holding period would be a disqualifying disposition and could negate the tax benefit you were trying to achieve.
• Year-end planning is critical for ISO exercises. December is typically the best month to evaluate whether to exercise because you have visibility into your full-year income and other tax items. Calculate your tentative minimum tax without any ISO exercises, then gradually add ISO bargain element income to see where the AMT kicks in. If you can stay below the AMT threshold by exercising fewer shares, do that and save the remaining exercises for January of the following year.
• One often-overlooked benefit: the AMT you pay on ISO exercises generates a credit that you can carry forward and use in future years when your regular tax exceeds your AMT. So paying AMT is not a permanent loss. It is more like an interest-free loan to the IRS that you get back over time. If you exercise $200,000 in ISOs and pay $40,000 in AMT, that $40,000 becomes a credit you can claim in future years. When you eventually sell the shares, the credit often substantially offsets the regular tax on the sale. Working with a tax professional who understands ISO taxation is strongly recommended before exercising options with significant bargain element amounts.
• The timing of ISO exercises around year-end is particularly important. If you exercise ISOs in December and the stock drops significantly in January, you are stuck with AMT on the December exercise price. But if you wait until January, you have a full year to monitor the stock price and can sell the shares before December 31 (as a disqualifying disposition) if the stock declines, avoiding the AMT entirely. The flexibility of early-year exercises is worth the one-month delay in most cases.
• For employees at publicly traded companies, the stock price on the exercise date is clear and verifiable. But for employees at private companies, the fair market value at exercise is determined by a 409A valuation, which is an independent appraisal of the company’s stock. If the 409A valuation seems high relative to the company’s prospects, exercising ISOs at that valuation generates a large AMT hit that may never be recovered if the company’s value declines. Private company employees should be especially cautious about ISO exercises and should consider whether the potential long-term capital gains benefit justifies the AMT risk.
• One more consideration: if you exercise ISOs and hold the shares, and the company is later acquired, the acquisition might trigger a forced sale that is treated as a disqualifying disposition. In that case, you paid AMT on the exercise (as if you were going to hold for the long-term capital gains benefit) but ended up with ordinary income treatment anyway due to the acquisition. The AMT credit carryforward would eventually offset some of this, but the timing mismatch can be financially painful. Employees at startups and growth-stage companies should factor the probability of acquisition into their ISO exercise planning.