The Alternative Minimum Tax Credit

You get a tax credit for Alternative Minimum Tax paid in a prior year.

The catch? You only get a credit for tax paid on deferral items, such as depreciation or realizing the value of stock options.

Excluded deductions such as property and state income taxes that may have triggered the AMT cannot be factored into the AMT credit.

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Use Form 8801, Credit for Prior Year Minimum Tax to calculate how much of the AMT you've paid was related to deferral items, which generate credit for future years, as opposed to exclusion items which consequently are lost.

Exclusion items. To identify your exclusion items, reference prior year's Form 6251. Certain items in Lines 2 through 26 of the Form 6251 are simply not deductible for AMT purposes, such as taxes, home equity mortgage interest, and miscellaneous deductions. Lines 2-5, 7-9, 11, and 12 are exclusion items. If you paid AMT based on entries on these lines, you will not receive a tax credit for AMT.

Other items create timing differences, such as depreciation differences between the two tax systems, and will generate a credit on Form 8801 and reduce your taxes in future years.

Deferral items. Lines 13 through 26 are deferral items. An AMT credit may be generated based on the reversal of the timing difference of these items. For example, AMT depreciation methods may be slower than those for the regular tax, but you will eventually receive the same deduction. To calculate and report your AMT credit you need to fill out Form 8801, Credit for Prior Year Minimum Tax - Individuals, Estates, and Trusts.

AMT tax credit update. Beginning in 2007, taxpayers who incurred large AMT tax credit carryforwards due to the exercise of incentive stock options before the tech stock crash in 2000 and 2001 will be able to recover a major portion of their credits over the next six years. This year, they will be able to claim a refundable credit of at least $5,000 or 20% of their long-term unused minimum tax credit, whichever is higher. Any minimum tax credit that is a result of AMT paid in 2003 or earlier is included in the long-term unused tax credit.

Long-term unused minimum tax credit. To figure the refundable amount of your minimum tax credit, you must first determine whether you have any "long-term unused minimum tax credit." The balance of these carryforwards should be listed on your 2006 Form 8801.

AMT refundable credit amount. After you figure your long-term unused minimum tax credit, you then must figure your "AMT refundable credit amount." Your AMT refundable credit amount is the greater of:

• 20% of your long-term unused minimum tax credit, or

• The lesser of:

• $5,000, or
• Your long-term unused minimum tax credit.

The AMT refundable credit amount is reduced if your adjusted gross income (AGI) exceeds certain threshold amounts based on your filing status. The AGI threshold amounts for 2007 are in the table that follows.

Your AMT refundable credit amount is reduced by 2% for every $2,500 ($1,250 if your filing status is married filing separately) that your AGI exceeds the threshold amount. Use your 2006 tax return and AGI (2006 Forms 1040, line 38, and 1040NR, line 36) as a guide in estimating your 2007 AGI.

For 2007, the AMT refundable credit amount is reduced if your AGI is more than the applicable amount in the second column of the following table and is eliminated if your AGI is more than the applicable amount in the third column.

Credit refundable. The refundable amount of your credit is the amount by which your minimum tax credit for the year exceeds the amount your minimum tax credit would be without regard to the above rules.

Form 8801. To claim the refundable and nonrefundable parts of this credit, use the 2007 Form 8801, Credit for Prior Year Minimum Tax -- Individuals, Estates, and Trusts. Tax software, such as TurboTax, compute this form for you*.

Back to the AMT Guide

* Disclosure: Kiplinger's provides content for TurboTax products.