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Chapter 15. Shopping at the Company Stor... > Stocking the Shelves with ISOs, NSOs... - Pg. 154

Shopping at the Company Store 154 For What It's Worth Long-term capital gains taxes are lower starting in 2001. The 12-month holding period will still result in a long- term capital gains tax at a top rate of 20 percent (or 10 percent if you are in the 15 percent tax bracket) for assets sold after January 1, 2001. But for assets acquired after December 31, 2000, if you hold that asset more than five years the capital gains tax will be lowered to a maximum of 18 percent--and as low as 8 percent for individuals in the 15 percent tax bracket. There's one little wrinkle (well, sometimes not so little) when it comes to ISOs. When you exercise your option, you could trigger the application of the alternative minimum tax (AMT). The AMT was designed to ensure that wealthy folks who qualify for a lot of deductions and exemptions would pay at least some income tax, but more middle-income Americans with ISOs are finding that the AMT applies to them, too. The bad news is that if you become subject to the AMT as the result of exer- cising your option, you are taxed on the difference between the exercise price and the fair market value of the stock (called the "spread") in the tax year in which the exercise takes place --even though you've not yet sold the shares. And the AMT rate is higher than the long-term capital gains rate; it could even be higher than the ordinary income tax upon the sale of your stock if you don't