Refundable Credit Base Amount

Step 3 in the calculation

By Kaye A. Thomas
Posted December 31, 2007

Technical correction provides partial fix.

Once you've determined your long-term unused minimum tax credit you can use that number to determine the refundable credit base amount. The tax law doesn't actually provide a name for this number, but "refundable credit base amount" seems to fit. This is the amount of refundable AMT credit you're allowed to claim if your income is below the threshold amount where the credit begins to be phased out.

Determining the base amount

Your refundable credit base amount can never be larger than your long-term unused minimum tax credit ("LUMTC"). Subject to that restriction, it's the largest of these numbers:

$5,000
20% of LUMTC
the previous year's refundable credit base amount.

This means you can potentially recover the entire amount in a single year if it's less than $5,000. Similarly, you can recover up to $10,000 in two years, up to 15,000 in three, and up to $20,000 in four. Larger amounts, with no upper limit, would be recoverable in five years, but always subject to the phase-out rule (step 4 in the calculation).

A proposal to change the base amount calculation described above found its way into some versions of the tax legislation being considered near the end of the 2007 session of Congress but was not adopted.

Technical correction

The original legislation providing the refundable credit didn't include the third alternative above (previous year's base amount). Without that alternative, people with large amounts of long-term unused minimum tax credit wouldn't be able to recover the full amount in five years, or even in the six years the credit is to be allowed.

Example: You have $100,000 of old AMT credit as of 2007, and claim $20,000. That means you have $80,000 of old AMT credit left when you file your 2008 return. Without the third choice, you would get 20% of that amount, or $16,000, not 20% of the original amount. The amount of credit before phase-out would become 20% smaller each year until it reached $5,000 or until the refundable credit expires after 2012.

The third choice was added in a technical correction passed by Congress late in 2007. It potentially allows full recovery of old AMT credit over a five-year period, as Congress apparently intended, except for people caught in a glitch described next.

Glitch for people with increase in old AMT credit

It's possible to have an increase in the amount of old AMT credit after the first year you're eligible for the refundable credit. For example, you might have paid AMT in 2000 and also in 2004. The amount paid in 2000 is old enough to qualify as old AMT credit in 2007, but the AMT you paid in 2004 wouldn't be old enough until 2008. In that situation you won't recover a full 20% of each amount in all years.

Example: You have $100,000 of old AMT credit as of 2007 and claim $20,000. You also have $50,000 of unused AMT credit from 2004, which becomes old AMT credit in 2008. In 2008 your credit before phase-out should be $30,000, but the way the law is now written it will be $26,000 (20% of the total remaining amount of $130,000).

The Ways and Means Committee requested comments on technical corrections before Congress passing this law, and we responded by pointing out this problem. It appears the staff of the Ways and Means Committee either decided not to fix this problem or found that they didn't have time to do so. It's possible the problem will be corrected in a subsequent technical corrections law, but we don't have any assurance this will happen.

Using this number

If your income is above a threshold amount, your refundable credit will not be the same as the base amount described on this page. The next step in the calculation is to apply the phase-out rule described here.