ISOs, AMT, and Leaving the US (2026): Exercise Timing and Stranded AMT Credits for Visa Holders

If you hold ISOs on an H-1B, L-1, or another nonimmigrant visa, the tax clock and the immigration clock were never designed to meet. The tax code assumes you will be a US taxpayer long enough to recover what AMT takes upfront. Your visa does not guarantee that. Some version of "I am moving back to India with unused AMT credit, how do I get it back?" comes up constantly in immigrant-tech forums, usually without a clear answer. Here is what an exercise costs in 2026 and what you can still control.

Why does exercising ISOs trigger AMT when I owe no regular tax?

For regular tax, exercising an ISO is a non-event: section 422 recognizes no income at exercise. The AMT system disagrees. The Form 6251 instructions require you to include the excess of fair market value over what you paid (line 2i on the 2025 form). You owe real cash tax on a paper gain.

The inputs come from Form 3921, which your company must file for every ISO exercise: box 3 is the exercise price per share, box 4 the FMV per share on the exercise date, box 5 the share count. (Box 4 minus box 3) times box 5 is your adjustment.

The 2026 parameters, from Rev. Proc. 2025-32:

• Exemption: $90,100 single, $140,200 married filing jointly, $70,100 married filing separately.
• Rates: 26% on the first $244,500 of taxable excess, 28% above that ($122,250 for married filing separately).
• Exemption phaseout: begins at $500,000 of AMT income for single filers and $1,000,000 for joint filers, at a 50% rate, fully gone at $680,200 (single) and $1,280,400 (joint). For married filing separately it begins at $500,000 and completes at $640,200.

In 2025 the phaseout began at $626,350 single and $1,252,700 joint. A single filer with $600,000 of AMT income kept the full exemption in 2025; in 2026 the same numbers strip $50,000 of it.

A simplified example: you exercise 20,000 ISOs at a $2 strike when the 409A value is $12, a $200,000 spread on Form 3921. If that spread plus your other income puts 2026 AMT income at $350,000 (single), the $90,100 exemption leaves $259,900 of taxable excess: 26% on the first $244,500 plus 28% on the rest is roughly $67,900 of tentative minimum tax. You owe AMT to the extent that exceeds your regular tax.

One more mechanic: your AMT basis in the shares increases by the adjustment, so a later sale reverses the difference through a negative adjustment (line 2k). That reversal is how the prepaid tax comes back, and it is exactly what departure breaks.

I was laid off on H-1B. The grace period ends before my ISO window. What now?

Two deadlines collide here, from different bodies of law:

• Immigration: 8 CFR 214.1(l)(2) gives H-1B (and E, L-1, O-1, TN) workers a discretionary grace period of up to 60 consecutive days after employment ends, or until the end of the authorized validity period if shorter, with no work authorization during it.
• Tax: section 422(a)(2) requires you to have been an employee until the day 3 months before you exercise. Miss that and the option loses ISO status and is taxed like a nonqualified option, with ordinary income at exercise. Three months is usually a little longer than 90 days; most equity plans set a 90-day post-termination exercise window that mirrors the statute, though some are shorter.

The 60-day immigration grace period runs out well before the 3-month tax deadline, so you often decide whether to exercise while packing to leave. The worst case is exercising illiquid private stock late in the window: a cash AMT bill on paper gains, on a departure-year return, with possibly no future US income to recover the credit against.

The tradeoff: exercising preserves ISO treatment and starts the capital gain clock (and, for early employees at a qualifying startup, the QSBS holding period, covered in QSBS for immigrant founders and early employees), at the cost of cash and AMT risk; waiting past 3 months means NSO treatment and ordinary income at exercise. And section 422(d) treats the excess as nonqualified when more than $100,000 of stock (valued at grant) first becomes exercisable in one calendar year, which catches people early-exercising everything in their departure year.

If your equity is RSUs rather than options, the layoff mechanics differ; see RSU taxes on an H-1B visa. If you are weighing an early exercise with an 83(b) election before a move, see ESPP and 83(b) elections on a visa.

What happens if I exercise ISOs and leave the US in the same year?

Your departure year is usually a dual-status year: resident until departure, nonresident after. The mechanics come from two IRS pages, the residency starting and ending dates page and the taxation of dual-status individuals page:

• By default, residency under the substantial presence test ends on December 31 of the departure year, not the day you fly out.
• An earlier termination date (your last day of US presence) requires a foreign tax home, a closer connection to that country, and a statement attached to your return.
• A dual-status departure return is filed on Form 1040-NR marked "Dual-Status Return": worldwide income for the resident portion, US-source income for the nonresident portion, no standard deduction, generally no joint filing.

The trap people miss: an ISO exercised during the resident portion puts the full spread into AMT income on that departure-year return. Accelerating your residency termination date does not undo an exercise that already happened while you were resident.

Exercising after you become a nonresident rarely helps either: by then you have usually blown the 3-month employee rule, the option is an NSO, and its compensation element is sourced where the work was done. Leaving does not move where the work was done.

Can selling in the same year as exercise erase the AMT?

Yes, and it is the cleanest escape hatch available. The Form 6251 instructions are explicit: if you exercise an ISO and dispose of the stock in the same year, regular tax and AMT treatment are identical and no adjustment is required.

The cost is that a same-year sale is a disqualifying disposition: the spread is taxed as ordinary compensation income instead of getting ISO treatment. If the stock dropped and you sell below the exercise-date value, section 422(c)(2) caps the includible compensation at your actual gain.

For a departing employee with liquid stock, this is often the right trade: exercise and sell before December 31 of your final resident year, pay ordinary tax on cash you actually received, and never enter the AMT credit maze. It does not work for private shares with no buyer, which is the exposure the next section digs into.

What if the stock drops after I exercise?

Your AMT basis in the shares is their fair market value on the exercise date, the same figure that drove the AMT bill. If the stock later falls and you sell below that value, the sale produces a loss for AMT purposes (the negative line 2k adjustment). But a capital loss only offsets capital gains plus a limited slice of ordinary income each year, and the unused portion carries forward. That capital-loss carryforward is a separate thing from your Form 8801 AMT-credit carryforward: two different carryforwards, on different forms, that people routinely conflate.

Timing changes the outcome:

• Sell in the same year you exercise and there is no AMT adjustment at all. Because it is a disqualifying disposition, section 422(c)(2) caps your includible compensation at your actual gain (sale price minus what you paid), so selling below the exercise-date value shrinks or erases the ordinary-income hit.
• Sell in a later year and you are left holding the AMT you already paid on a paper gain that evaporated, recoverable only through the credit, which needs future US regular tax to release.

For private stock you cannot sell at all, you get the AMT bill with none of these outlets. That is why an illiquid ISO exercise in a departure year is the riskiest spot a departing visa holder can be in.

How does the AMT credit work, and why does leaving the US strand it?

Section 53 gives you a minimum tax credit equal to AMT paid in prior years (from timing items like the ISO adjustment) minus what you have already used, claimed on Form 8801. The carryforward never expires.

The catch is section 53(c): each year, the credit can only offset the amount by which your regular tax exceeds your tentative minimum tax. No regular US tax, no recovery. Departure breaks this in three compounding ways:

• No US income, no regular tax. A nonresident alien is taxed only on US-source and effectively connected income (Publication 519). With no ongoing US income, your regular tax is zero year after year, and the credit releases nothing.
• The reversal never runs. Selling the shares normally triggers the negative basis adjustment that helps release credit. But a qualifying sale after departure, as a nonresident present in the US fewer than 183 days that year, is generally not US-taxable at all under section 871(a)(2). No US tax on the sale, nothing for the reversal to do.
• India gives no relief for it. The treaty's credit article (Article 25(2)(a)) lets India credit US income tax actually paid on income India is taxing; an unused carryforward is not tax paid on that income. And Article 13 leaves capital gains to domestic law, so India taxes the gain in full once you are ordinarily resident.

The money is not legally lost. It is economically unreachable unless you re-establish US tax liability someday.

I am leaving with $50,000 of unused AMT credit. How do I recover it before I go?

Say you paid $90,000 of AMT on an exercise, recovered $40,000 through Form 8801 over three years, and are departing with $50,000 stranded. The only mechanism that releases credit is a year where regular tax exceeds tentative minimum tax, so every strategy widens that gap while you still file as a resident.

• Accelerate ordinary income into remaining resident years. Regular rates run up to 37% while AMT rates top out at 28%, so incremental ordinary income generally raises regular tax faster than tentative minimum tax, opening room for the credit. Candidates: pulling a bonus forward, exercising NSOs, Roth conversions, retirement withdrawals (weigh early-withdrawal penalties first). This is recovery at a haircut, not face value: you still pay AMT-level tax on the accelerated income itself.
• Long-term capital gains are weak medicine. They get the same preferential rates under both systems (section 55(b)(3)), so a big gain raises regular tax and tentative minimum tax roughly together, and can push AMT income over the $500,000/$1,000,000 phaseout lines where each extra dollar strips 50 cents of exemption. Realizing gains purely to free credit can backfire.
• Sell the ISO shares while still resident. A sale in a resident year runs the negative basis adjustment through a US return and tends to release credit. If you plan to sell within a year or two anyway, sell before departure; selling after usually wastes the reversal.
• Use trailing US-source income if you have it. US-workday compensation stays US-taxable on Form 1040-NR, and Form 8801 works for 1040-NR filers: the instructions compute the limitation from Form 1040-NR line 16. Whether the credit can offset the flat 30% tax on a nonresident's dividends is unsettled; do not build a plan on it.

Often only part of the credit is recoverable at acceptable cost; the rest is a sunk cost of the original exercise. How much depends on the resident years you have left and the income you can actually move.

Can I keep my E*TRADE or Robinhood account and sell ISO shares from India after my H-1B ends?

Usually yes, you can keep the account, but the paperwork changes, and some of this is a custody question rather than a tax question, so confirm the specifics with your broker. This is the first thing to sort out, before any AMT optimization, and most brokers will not give you cross-border tax advice.

On the US side, two things shift once you are a nonresident:

• Your tax certification changes. As a US person you gave the broker a Form W-9; as a nonresident you file a Form W-8BEN instead, documenting yourself as a foreign person, and it has to be kept current.
• Dividends and sales are treated differently. US-source dividends become subject to withholding at the flat 30% rate, often reduced under the India-US treaty, and are reported to you on Form 1042-S rather than a 1099. A sale of the shares while you are a nonresident present in the US fewer than 183 days that year is generally not US-taxable under section 871(a)(2), which the next section covers.

On the India side, your Indian demat, NRO, or PIS account rules govern where and how you can hold the shares or route the proceeds. That is an Indian regulatory question separate from US tax, and an India-side advisor should confirm it before you move funds. Whether an unused AMT credit can offset the 30% dividend withholding as a full nonresident is unsettled, so do not plan around it.

If I sell my ISO shares after moving back to India, who taxes what?

On the US side, timing and character control everything:

• A qualifying disposition (held 2 years from grant and 1 year from exercise), sold after departure while you are a nonresident present in the US fewer than 183 days that year, is generally not taxed by the US at all under section 871(a)(2).
• A disqualifying disposition after departure is different: the compensation element is sourced to where you performed the services, so the US-workday portion generally remains US-taxable even as a nonresident. Treaty Article 16(1) agrees, taxing employment income where the employment was exercised.

On the India side, residency status runs the show. Most returnees are resident but not ordinarily resident (RNOR) for roughly their first 2 to 3 years back: you keep RNOR status if you were nonresident in India in 9 of the previous 10 years, or spent 729 days or less in India across the previous 7 years. During RNOR years, foreign-source income such as gains on US brokerage stock is generally outside Indian tax, subject to conditions. After that, India taxes worldwide income, the treaty offers no capital gains exemption, and relief comes only through foreign tax credit mechanics. The sequencing decision is the core of Sell RSUs before or after moving back to India?, and the same RNOR logic applies to ISO shares.

I'm on H-1B, not a green card. Does the exit tax touch my ISOs?

For most visa holders, no. Forums blur this constantly. The section 877A exit tax applies only to US citizens who renounce and to long-term residents: green card holders in at least 8 of the last 15 taxable years. An H-1B or L-1 holder who leaves is not an expatriate under these rules, files no Form 8854, and faces no mark-to-market tax.

Green card holders past the 8-year line are different. For 2026 you are a covered expatriate if your average annual net income tax over the prior five years exceeds $211,000, your net worth is $2 million or more (a flat, unindexed threshold that big-tech equity crosses quickly), or you cannot certify five years of tax compliance. Covered expatriates face a deemed mark-to-market with a $910,000 gain exclusion for 2026, and unsold or unexercised equity can be swept into the calculation. Everyone terminating long-term residency must file Form 8854; a $10,000 penalty can apply. Full mechanics are in our guide to the US exit tax for green card holders moving back to India. The short version: leaving on H-1B strands AMT credits but triggers no exit tax; leaving after 8+ green card years can tax gains you never realized.

I paid California AMT on ISOs, then left California. Can I still use the credit?

California runs a parallel trap. FTB Publication 1004 treats an ISO as a nonstatutory option for CA AMT: the spread is a California adjustment in the exercise year, no adjustment applies on a same-year sale, and a prior-year credit may be allowed later through form FTB 3510.

Two California rules bite departing tech workers:

• Leaving does not erase the wage claim. California taxes the option wage income of nonresidents to the extent services were performed in California, allocated by California workdays from grant to exercise over total workdays.
• The CA credit strands like the federal one. Nonresidents compute CA AMT on Schedule P (540NR), and the FTB 3510 credit applies against California net tax. Leave with no California-source income and there is nothing for it to offset.