S receives incentive stock options (ISOs) as part of a compensation plan.The unrestricted option is for 100 shares at $100 per share.S exercises the option five years later when the FMV of the stock is $190 per share.S holds the stock for five more years and then sells it for $225 per share.Regarding the sale by S of the ISO stock, S will have a regular tax gain and AMT gain, respectively, of
A)$2,500 and $12,500
B)$22,500 and $3,500
C)$13,590 and $12,500
D)$12,500 and $13,590
E)$12,500 and $3,500

Question

Quizplus · Accepted Answer

For regular tax purposes, the gain is the difference between the sale price and the exercise price, which is $225 - $100 = $125 per share for 100 shares, totaling $12,500. For AMT purposes, the initial gain is the difference between the FMV at exercise and the exercise price, which is $190 - $100 = $90 per share for 100 shares, totaling $9,000. However, since the question asks for the gain at the time of sale, for AMT purposes, we consider the difference between the sale price and the FMV at the time of exercise, which is $225 - $190 = $35 per share for 100 shares, totaling $3,500.

S Receives Incentive Stock Options (ISOs) as Part of a Compensation