Tax planning and compliance for investors
Free Online Guides
Kaye A. Thomas
Updated March 14, 2009
Generally, it's half the long-term unused credit.
Once you've determined your long-term unused minimum tax credit you can use that number to determine the tentative refundable credit. This is the amount of refundable AMT credit you're allowed to claim, subject to coordination with the regular AMT credit.
Your tentative refundable credit can never be larger than your long-term unused minimum tax credit. Subject to that restriction, it's the larger of these numbers:
In addition, if you paid interest or penalties as a result of owing AMT on the exercise of an incentive stock option for any year before 2008, your tentative refundable credit for is increased by half that amount for the years 2009 and 2010, allowing you to recover that amount over a period of two years.
Comment: This is one of the provisions that has caused heartburn for people who paid their tax on time. Some of them took out second mortgages or incurred other costs to come up with the money to pay the tax, and there's no way for them to recover those costs. Yet people who didn't pay when the tax was due avoid paying even the relatively low interest rates that apply to unpaid income tax.
The version of the refundable credit that applied to 2007 allowed only 20% per year but with a $5,000 floor. Someone whose long-term unused minimum tax credit was $12,000, for example, would expect to recover $5,000 in 2007, another $5,000 in 2008, and the last $2,000 in 2009. The new version, for years 2008 and later, raises the percentage from 20% to 50%. It eliminates the $5,000 floor, but says you can claim the same amount as the previous year (without regard to the income phase-out). Because of this lookback, anyone who used the $5,000 floor on a 2007 tax return will get the benefit of that floor in subsequent years. In the example where someone earlier in this paragraph, the schedule for recovering the credit will remain unchanged, even though $5,000 is more than 50% of the credit that remains unused in 2008.
There is one narrow group of taxpayers who lose out be the elimination of the $5,000 floor. Suppose you're claiming the refundable credit for the first time in 2008 because your unused credit wasn't old enough in 2007 to qualify for this benefit. You can claim only 50% of the credit in 2008, even if the result is that you claim less than $5,000 for the year. Under the old version of the rule you would have been able to claim at least $5,000 for 2008.
The phase-out rule that applied to higher-income taxpayers for 2007 has been repealed, so there's just one more step in determining your refundable credit: coordination with the regular AMT credit.
|That Thing Rich People Do||The fastest, easiest way to learn the principles of investing.|
|Our complete guide to Roth IRAs and Roth accounts in 401k and similar plans: choosing, creating, building and using these accounts.|
|Consider Your Options|
|A plain-language guide for people who receive stock options or other forms of equity compensation.|
|Equity Compensation Strategies|
|A text for financial advisors and other professionals who offer advice on how to handle equity compensation including stock options.|
|Capital Gains, Minimal Taxes|
|Tax rules and strategies for people who buy, own and sell stocks, mutual funds and stock options.|