Tax planning and compliance for investors
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Kaye A. Thomas
Updated March 14, 2009
These rules apply in years when you qualify for both the regular AMT credit and the refundable AMT credit.
The previous steps in this calculation yield a number the IRS calls the tentative refundable credit. This number is tentative in the sense that it will be reduced to the extent you're able to claim the regular AMT credit in the same year. If your regular AMT credit is larger than your tentative refundable credit, you won't receive any refundable credit at all. This means the total amount of AMT credit you can claim in a given year is equal to the regular AMT credit or the tentative refundable credit, whichever is larger. You aren't allowed to add them together.
Example: This year your regular income tax is $3,000 greater than your tax as calculated under the AMT rules, so you're allowed to claim $3,000 of AMT credit under the regular rule. Your tentative refundable credit is $7,000. In this situation, you'll claim a total of $7,000 in AMT credit for this year. You won't be allowed to add these amounts together and claim $10,000.
This rule will apply even in a situation where your ability to claim the regular AMT credit relates to AMT paid in more recent years. In the example above, you may have had $35,000 in long-term unused minimum tax credit and another $5,000 in available AMT credit from exercising an incentive stock option in the most recent year. Your recovery of $3,000 under the regular AMT credit results from a sale of the stock you acquired last year. It might seem fair to allow both credits in this situation, permitting you to recover the full amount of the long-term credit within five years. Unfortunately, the law treats the $3,000 that's available under the regular AMT credit as if it comes from the long-term unused minimum tax credit.
For technical reasons, refundable credits appear in a different place on your tax return than other credits. In the example above, you would report a regular AMT credit of $3,000 and a refundable AMT credit of $4,000. The total amount claimed is equal to the tentative refundable credit (the larger of the two amounts), but that total is split between two different lines of the return.
If your return shows a smaller refundable credit than you expected, check to see if this is because you're receiving part of your overall AMT credit for the year under the regular rule.
The key point about the final number in this calculation is that it is refundable. This means it can be used against regular income tax or against AMT, and you can receive a check from the IRS reflecting the full amount even if the result is a refund that exceeds the total amount of tax you paid for the year.
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