Capital loss carryover and AMT

Normally, capital losses can be used to offset capital gains and reduce taxable income. When AMT is involved, capital losses can only be used to offset capital gains, and any excess losses can only be carried forward to future years.

From the Instructions for Form 6251, line 2k.

Line 2k—Disposition of Property

Your AMT gain or loss from the disposition of property may be different from your gain or loss for the regular tax. This is because the property may have a different adjusted basis for the AMT. Use this line to report any AMT adjustment resulting from refiguring:

Gain or loss from the sale, exchange, or involuntary conversion of property reported on Form 4797, Sales of Business Property;

Casualty gain or loss to business or income-producing property reported on Form 4684, Casualties and Thefts;

Ordinary income from the disposition of property not already taken into account in (1) or (2) or on any other line on Form 6251, such as a disqualifying disposition of stock acquired in a prior year by exercising an incentive stock option; and

Capital gain or loss (including any carryover that is different for the AMT) reported on Form 8949, Sales and Other Dispositions of Capital Assets, or Schedule D (Form 1040), Capital Gains and Losses.

 

First figure any ordinary income adjustment related to (3) above. Then, refigure Form 4684, Form 4797, Form 8949, and Schedule D for the AMT, if applicable, by taking into account any adjustments you made this year or in previous years that affect your basis or otherwise result in a different amount for the AMT. When you refigure your gain or loss on Form 8949 for AMT, the amount of gain you elected to defer for regular tax purposes due to an investment in a qualified opportunity fund may need to be adjusted on your AMT Form 8949. An adjustment may be required if the regular tax and AMT adjusted basis of the property you sold prior to your investment is different.

If you have a capital loss after refiguring Schedule D for the AMT, apply the $3,000 capital loss limitation separately to the AMT loss. Because the amount of your gains and losses may be different for the AMT, the amount of any capital loss carryover may also be different for the AMT. See the following example. To figure your AMT capital loss carryover, fill out an AMT Capital Loss Carryover Worksheet in the Schedule D instructions.

For each of the four items listed earlier, figure the difference between the amount included in taxable income for the regular tax and the amount included in income for the AMT. Include the difference as a negative amount on line 2k if (a) both the AMT and regular tax amounts are zero or more and the AMT amount is less than the regular tax amount; or (b) the AMT amount is a loss, and the regular tax amount is a smaller loss, or is zero or more.

Enter on line 2k the combined adjustments for the four items listed earlier.

Example.

On March 13, 2022, your filing status is single, you paid $20,000 to exercise an ISO (which was granted to you on January 3, 2021) to buy 200 shares of stock worth $200,000. The $180,000 difference between your cost and the value of the stock at the time you exercised the option isn’t taxable for the regular tax. Your regular tax basis in the stock at the end of 2022 is $20,000. For the AMT, however, you must include the $180,000 as an adjustment on your 2022 Form 6251. Your AMT basis in the stock at the end of 2022 is $200,000.

On January 18, 2023, you sold 100 of the shares for $75,000. Because you didn’t hold these shares more than 1 year, that sale is a disqualifying disposition. For the regular tax, you have ordinary income of $65,000 ($75,000 minus your $10,000 basis in the 100 shares). You have no capital gain or loss for the regular tax resulting from the sale. For the AMT, you have no ordinary income, but have a short-term capital loss of $25,000 ($75,000 minus your $100,000 AMT basis in the 100 shares).

On April 21, 2023, you sold the other 100 shares for $60,000. Because you held the shares for more than 1 year and more than 2 years had passed since the option was granted to you, the sale isn’t a disqualifying disposition. For the regular tax, you have a long-term capital gain of $50,000 ($60,000 minus your regular tax basis of $10,000). For the AMT, you have a long-term capital loss of $40,000 ($60,000 minus your AMT basis of $100,000).

You have no other sales of stock or other capital assets for 2023. You enter a total negative adjustment of $118,000 on line 2k of your 2023 Form 6251, figured as follows.

You figure a negative adjustment of $65,000 for the difference between the $65,000 of regular tax ordinary income and the $0 of AMT ordinary income for the first sale.

For the regular tax, you have $50,000 capital gain net income from the second sale. For the AMT, you have a $25,000 short-term capital loss from the first sale, and a $40,000 long-term capital loss from the second sale, resulting in a net capital loss of $65,000 for the AMT. However, only $3,000 of the $65,000 net capital loss is allowed for 2023 for the AMT. The difference between the regular tax gain of $50,000 and the $3,000 loss allowed for the AMT results in a $53,000 negative adjustment to include on line 2k.

 

You have an AMT capital loss carryover from 2023 to 2024 of $62,000, of which $22,000 is short term and $40,000 is long term. If you have no other Form 8949 or Schedule D transactions for 2024, your adjustment reported on your 2024 Form 6251 would be limited to ($3,000), the amount of your capital loss limitation for 2024.