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Hello: The following pointer

says when one is granted 100 shares at $5 per share on Jan 1 1999 as part of a qualified ISO and he/she exercises the option to purchase all 100 at $8 for $500 on Sep 1 1994 and then he/she sell all 100 for $10 on Feb 1 1996, he/she will have to report $300 as AMT in 1994 and the entire 500 is treated as long term.

This is tricky stuff, the kind where every word counts. You leave out a critical word in your paraphrase: the $300 is reported as a "preference item" on the AMT calculation. Whether or not you actually pay AMT is a separate matter, related obviously to how much you have in total preference items.

In fact, that illustration in the Fool's page is easily misleading because at the levels talked about, AMT would be negligible at best, and only incurred if you had other significant preference items. Your total "preference item" income needs to be in the neighborhood of $30,000 or more before AMT kicks in, the exact number varying with your filing status and income level. Other preference items to worry about include, most commonly, deductions you take for state and local income taxes or for real estate taxes.

To read a really clear and far more complete treatment of ISOs and AMT, you should head over to

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