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Updated August 2, 2026. Quick answer: most ISO advice tells you what AMT will cost once you have exercised. The more useful question runs the other way: how many shares can you exercise this year before AMT starts at all? There is almost always a free band — for 2026 the AMT exemption is $140,200 filing jointly and $90,100 single — and exercising up to that line each year is the standard way to move ISOs into long-term holding without a tax bill.
The calculator
Why a free band exists at all
AMT is not a second tax stacked on the first. It is a parallel calculation, and you pay only the excess of one over the other:
“There is hereby imposed (in addition to any other tax imposed by this subtitle) a tax equal to the excess (if any) of- (1) the tentative minimum tax for the taxable year, over (2) the regular tax for the taxable year plus, in the case of an applicable corporation, the tax imposed by section 59A.”
IRC § 55(a)
So until your tentative minimum tax climbs past your regular tax, AMT is zero — and the exemption keeps a large slice of AMTI out of the tentative calculation entirely. The gap between those two numbers is your free band, and it refills every January.
What the tax means for the rest of your money
A calculation can tell you what is owed in one place without telling you how the accounts, the timing and the rest of the return fit together, and an adviser can look at the whole picture with you.
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The 2026 figures this uses
| Filing status | Exemption | Phaseout starts | Exemption gone at |
|---|---|---|---|
| Joint or surviving spouse | $140,200 | $1,000,000 | $1,280,400 |
| Unmarried | $90,100 | $500,000 | $680,200 |
| Married filing separately | $70,100 | $500,000 | $640,200 |
The rates are 26% on the first $244,500 of taxable excess and 28% above it ($122,250 for married filing separately) — IRC § 55(b)(1)(A).
The phaseout is the part that surprises people
Above $1,000,000 of AMTI filing jointly — $500,000 single — the exemption is reduced by 50 cents for every dollar of excess. Not 25 cents, which is the figure in older guidance and in the general rule; the statute substitutes “50 percent” for “25 percent” for these years (IRC § 55(d)(4)(A)(ii)(IV)).
The effect is that inside the phaseout band each extra dollar of bargain element is taxed harder than the headline rate implies, because it both adds to the excess and shrinks the exemption. The calculator flags when you are in that band, and the honest advice there is to stop reading web pages and involve someone who will look at your whole return.
How this is normally used
Exercise up to the free band each year, hold the shares more than a year from exercise and two years from grant, and the eventual sale is long-term capital gain rather than ordinary income. Spread across several years, a large ISO position can often be moved into long-term treatment with little or no AMT ever paid. That is the whole strategy, and this page sizes each annual slice.
Two things it does not tell you, both of which matter more than the tax:
- Exercising costs cash and creates risk. You pay the strike price for shares you cannot necessarily sell. If the stock falls, the loss is real and the AMT already paid does not vanish with it — a pattern that has ruined people in more than one cycle.
- AMT paid is not always lost. It generally creates a credit recoverable in later years, which changes how expensive crossing the line really is — how the credit comes back.
Where this sits
If you want the tax on a specific exercise rather than the crossover, the bargain-element calculator takes that question directly. The rules around the edges are covered separately: the $100,000 vesting limit, what happens 90 days after you leave, what a disqualifying disposition does, and how NSOs differ.
If the position has grown into most of your net worth, the tax question is no longer the main one — the concentration itself is.
2026 exemption, phaseout and 28%-threshold figures from IRS Rev. Proc. 2025-32 § 4.10, extracted locally and cross-checked three ways; the 26/28 rates from IRC § 55(b)(1)(A) and the 50% phaseout from § 55(d)(4)(A)(ii)(IV), both read at the Code. Figures are indexed and change annually. General information, not tax advice.