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Strategies & Market Trends : Income Taxes and Record Keeping ( tax ) -- Ignore unavailable to you. Want to Upgrade?

To: jbn3 who wrote (2105)	4/1/1999 7:51:00 AM
From: Maywood	Read Replies (3) \| Respond to of 5810

Does anyone know how the AMT works in conjunction with the long term capital gains rate? If the gain is high enough, might you end up paying the AMT rate of 26% on part of it or will you pay only 20% on an unlimited amount of gains? For example, say you are lucky enough to receive employee stock options in a company that will be going public at a later date. Suppose you exercises the options such that a portion of them are held for more than a year so that when the company goes public, some shares can be sold and the long term capital gains rate of 20% will apply. Suppose this results in a sizable gain, say $300,000. Will this entire amount of gain be taxed at only 20%, or will you end up paying AMT tax on part of it such that some is taxed at 26% (the AMT rate). I've looked at Part IV of the AMT form 6251, to try to figure this out, but as usual with any IRS form, it's not exactly straight forward. I suppose I'll have to fill out some "pretend" forms to work through the math and figure out what the end result would be.

To: jbn3 who wrote (2105)	4/27/1999 1:38:00 PM
From: Kaye Thomas	Read Replies (1) \| Respond to of 5810

This is a rather late response, but it appears your message didn't have to do with a 1998 tax return so perhaps the question is still relevant. d) I'll start with your last question. If your wife's parents inherited the stock, their basis is not the original cost. Instead, their basis is equal to the value of the stock on the date they inherited it (or the alternate valuation date, if that was elected). For example, if the inherited the stock when it was trading at $20, you can forget about the original $5 purchase price. It's as if they bought it for $20. a) Now going back to your first question, when your wife sells she will report gain or loss based on the difference between the sale proceeds and the basis as described in the preceding paragraph. b) The price on the date of the gift is relevant only if the price is lower than the parents' basis. That seems unlikely unless your wife's parents inherited the stock quite recently. c) The amount the parents can transfer without making a taxable gift is based on the value of the stock and has nothing to do with their basis. It's worth noting, though, that even if the gift exceeds $20,000, there won't be any current federal gift tax unless the parents have already made taxable gifts of at least $650,000. They should consult an estate planner to be sure, but it probably is not a disadvantage for them to make a larger gift if that is what they want to do. Thanks for your comments on my web site. Kaye Thomas, author Fairmark Press Tax Guide for Investors fairmark.com