Tax planning and compliance for investors
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Kaye A. Thomas
Updated March 14, 2009
Beginning in 2007, certain taxpayers are able to claim old unused AMT credit even if it means getting a refund that exceeds the current year's tax.
The refundable AMT credit will be a boon to many taxpayers, especially those who encountered disaster with incentive stock options during the tech stock collapse that began in 2000. Some people are in for unpleasant surprises, though. Most notably, the phase-out rule (step 4 of the calculation described below) can reduce or even eliminate your ability to claim this credit. That isn't the only problem, though. Some people will be tripped up by the FIFO rule that applies in step 2 of the calculation. Here's an overview of the calculation, with links to pages providing details.
The law abates any unpaid AMT owed for exercise of an incentive stock option in a year before 2008. That means you don't have to pay the tax, but of course it also means you can't claim credit for this unpaid tax.
details: Abatement of Unpaid AMT
The first step in working with the refundable AMT credit is the same as for the normal AMT credit: determine the amount that's potentially available to be claimed as AMT credit. This is not necessarily the same as the total amount of AMT you paid in previous years, because AMT credit is allowed only for timing items, such as adjustments relating to incentive stock options.
details: Available AMT Credit
The refundable AMT credit is allowed only for the part of your available AMT credit that qualifies as long-term unused minimum tax credit. Generally this is available AMT credit that stems from AMT paid more than three years earlier, but some people will be tripped up by a first-in, first-out rule (FIFO).
details: Long-Term Unused Minimum Tax Credit
The refundable credit base amount is generally 20% of your long-term unused minimum tax credit or $5,000, whichever is greater. (If your long-term unused minimum tax credit is less than $5,000, then this lesser amount is your refundable credit base amount.) A technical correction appearing in legislation passed near the end of 2007 partially corrects a glitch in this part of the calculation.
details: Refundable Credit Base Amount
If your income is above the amounts specified in these rules, your refundable credit base amount will be reduced, possibly to zero. The amount allowable after application of the income limitation is the tentative refundable credit.
details: Tentative Refundable Credit
The amount of refundable credit you're allowed to claim is actually only the amount by which the tentative refundable credit exceeds the normal, or nonrefundable, AMT credit.
details: Coordination with Regular AMT Credit
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