How to Fill Out Form 6251 for Alternative Minimum Tax

Form 6251, Alternative Minimum Tax—Individuals, is an Internal Revenue Service (IRS) form used to calculate a taxpayer’s potential liability for the Alternative Minimum Tax (AMT). The AMT is a parallel tax system ensuring that individuals with higher incomes pay a minimum amount of tax, even after using various deductions and credits. Taxpayers who may be subject to the AMT must calculate their liability under both the regular and AMT systems and pay the higher amount.

Determining the Filing Requirement for Form 6251

A taxpayer must first determine if they are required to complete Form 6251. The IRS provides specific income thresholds that trigger this requirement, and exceeding them means the form must be completed to determine if any AMT is owed. The need to file is based on a comparison between the tentative minimum tax calculated on Form 6251 and your regular tax liability.

For the 2024 tax year, the income levels that trigger an evaluation for AMT are based on your filing status and adjusted gross income (AGI) modified by certain tax preference items. The instructions for Form 6251 provide a worksheet to help taxpayers see if they need to complete the full form.

Beyond income thresholds, certain situations require you to file Form 6251 regardless of your income level. Filing is required if you claim any of the following:

• Certain credits passed through the general business credit on Form 3800
• The qualified electric vehicle credit from Form 8834
• The personal use part of the alternative fuel vehicle refueling property credit from Form 8911
• The credit for prior year minimum tax from Form 8801

Information and Inputs for Form 6251

To complete Form 6251, you must gather several other tax forms and specific pieces of financial information. The calculation starts with information from your Form 1040 or 1040-SR. Various schedules and forms that report items adjusted for AMT purposes are also necessary, as these documents provide the data for the adjustments and preferences that differentiate regular taxable income from alternative minimum taxable income (AMTI).

A primary input for Form 6251 comes from Schedule A, Itemized Deductions. State and local taxes, including income, sales, and property taxes, are deductible for regular tax purposes but not under the AMT system. These taxes are added back to your income when calculating AMTI.

Another common trigger for AMT is the exercise of incentive stock options (ISOs). When you exercise ISOs, the difference between the stock’s fair market value and the price you paid is not regular income but is considered income for AMT purposes. Information about this is on Form 3921, which employers provide.

Interest from certain private activity bonds also requires attention. This interest is often tax-exempt for regular tax purposes but must be included in income for AMT calculations. Form 1099-INT will indicate if any interest is from specified private activity bonds. Other inputs can include different depreciation calculations, investment interest expense adjustments, and net operating loss deductions.

Completing Form 6251 Line by Line

Completing Form 6251 involves a methodical, three-part process to recalculate your taxable income under a different set of rules.

Part I – Adjustments and Preferences

Part I adjusts your regular taxable income to arrive at your alternative minimum taxable income (AMTI) before any exemptions. This section modifies certain deductions and income items that are treated differently for AMT purposes. You will enter items like the state and local taxes from Schedule A, the bargain element from exercising ISOs, and tax-exempt interest from private activity bonds. The sum of these adjustments is combined with your regular taxable income to calculate your initial AMTI.

Part II – Alternative Minimum Taxable Income (AMTI)

Part II takes the initial AMTI from Part I and applies an AMT exemption, which functions similarly to a standard deduction. For the 2024 tax year, the exemption amount is $85,700 for single filers and $133,300 for those married filing jointly. This exemption is subtracted from the AMTI.

This exemption is subject to a phase-out for higher-income taxpayers. For 2024, the phase-out begins for single filers with AMTI over $609,350 and for joint filers with AMTI over $1,218,700. The exemption is reduced by 25 cents for every dollar of AMTI over these thresholds. After subtracting the allowed exemption, the result is the final Alternative Minimum Taxable Income.

Part III – Tax Computation

Part III is where the final tax is calculated. The AMTI from the previous section is taxed at two rates for 2024: 26% on the first $232,600 ($116,300 for married filing separately) and 28% on any amount above that. This calculation results in the tentative minimum tax. You then compare your tentative minimum tax with your regular tax liability from Form 1040. If the tentative minimum tax is higher, the difference is the Alternative Minimum Tax you owe, which is carried over to your Form 1040.

The Minimum Tax Credit on Form 8801

In some cases, AMT paid in one year can generate a tax credit to lower your regular tax liability in future years. This credit is calculated and claimed using Form 8801, Credit for Prior Year Minimum Tax. The availability of this credit hinges on the reasons that triggered the AMT liability.

The IRS distinguishes between two types of AMT adjustments: deferral items and exclusion items. Deferral items cause a temporary difference between regular taxable income and AMTI. Examples include the adjustment for exercising incentive stock options or different depreciation schedules. These items generate a credit because the timing of income or deduction is shifted, not permanently disallowed.

Exclusion items result in a permanent difference between the two tax systems and do not generate a credit. Common exclusion items include the standard deduction, itemized deductions for state and local taxes, and interest from certain private activity bonds. When filling out Form 8801, you must recalculate the prior year’s AMT considering only the deferral items to determine the credit amount you can carry forward.