What Is the AMT Tax Credit and How Do I Claim It?
Learn how the AMT tax credit lets you recover prior tax payments caused by timing differences and understand the specific rules that determine your eligibility.
The Alternative Minimum Tax (AMT) is a parallel tax system that ensures high-income individuals, estates, and trusts pay a minimum amount of tax. It accomplishes this by disallowing certain deductions and tax-preference items available under the regular tax code, resulting in a separate tax liability calculation. If the tax calculated under AMT rules is higher than the regular tax, the taxpayer must pay the higher amount.
The AMT tax credit exists to compensate for this system. It is a nonrefundable credit that allows taxpayers to recover AMT paid in previous years. The credit’s purpose is to address timing differences, preventing certain income from being taxed twice: once under AMT and again under the regular tax system.
Determining Your Credit Eligibility
Eligibility for the AMT credit hinges on the reason the alternative minimum tax was paid in a prior year. The tax code separates the adjustments and preference items that trigger AMT into two categories: deferral items and exclusion items. The credit is only generated by AMT paid on deferral items, which create temporary differences between regular and alternative minimum taxable income (AMTI) that reverse over time.
A common example of a deferral item is the exercise of an incentive stock option (ISO). For regular tax purposes, no income is recognized when an ISO is exercised; tax is due only when the stock is later sold. For AMT purposes, the difference between the fair market value of the stock at exercise and the price paid is considered income in the year of exercise. This acceleration of income for AMT purposes creates a timing difference that generates a potential credit. Other deferral items include accelerated depreciation on certain property and interest from specified private activity bonds.
In contrast, exclusion items create a permanent difference between regular tax and the AMT. These are deductions allowed for regular tax but are completely disallowed for AMT, and this difference never reverses. Because there is no future tax event to reconcile, AMT paid on these items does not generate a credit.
The most common exclusion item is the deduction for state and local taxes (SALT), which is limited to $10,000 for regular tax but is not deductible at all for AMT. Other exclusion items include the standard deduction and certain medical expense deductions. If a taxpayer’s AMT liability in a prior year was caused only by these permanent exclusion items, they are not eligible for the credit.
Information Needed to Calculate the Credit
To calculate the AMT credit, you must gather specific information from your prior-year tax returns. The primary document is Form 6251, Alternative Minimum Tax—Individuals, from the year you paid the AMT. This form contains all the figures related to your AMT calculation, including the specific adjustments and preferences that contributed to the liability.
The credit itself is calculated on Form 8801, Credit for Prior Year Minimum Tax—Individuals, Estates, and Trusts. This form must be completed and filed with your current-year tax return. The core concept of Form 8801 is to determine how much of your prior-year AMT was attributable to deferral items versus exclusion items.
Part I of the form guides you to recalculate the prior year’s AMT as if only the exclusion items existed. You will use figures directly from your prior-year Form 6251 to start this process, essentially simulating an AMT calculation where timing-difference items are ignored. This recalculation isolates the portion of the AMT that does not generate a credit.
The form then instructs you to subtract this “hypothetical” AMT from the actual AMT you paid. The resulting difference is the amount of your adjusted net minimum tax attributable to deferral items, which becomes the basis for your available credit for the current year. Any credit you were unable to use in previous years is carried forward and added to this amount.
Claiming the AMT Credit
Once you have completed Form 8801 and calculated the total available credit, the next step is to claim it on your current tax return. The final credit amount from Form 8801 is transferred to Schedule 3 (Form 1040) on the line for the prior-year minimum tax credit. Attaching the completed Form 8801 to your tax return is required.
A rule governs how much of the credit can be used in any single year. The AMT credit is nonrefundable, meaning it can reduce your regular tax liability to zero, but it cannot result in a cash refund. Furthermore, the credit is limited by your tentative minimum tax for the current year. You can only use the credit to the extent that your regular tax is more than your tentative minimum tax, calculated on the current year’s Form 6251.
This limitation prevents the credit from being used to offset any AMT liability in the current year. For example, if your regular tax is $12,000 and your tentative minimum tax is $9,000, you can use up to $3,000 of the AMT credit. If your available credit from Form 8801 was $5,000, you would use $3,000 this year to reduce your tax bill to $9,000.
Any portion of the credit that cannot be used due to this annual limitation is not lost. The unused amount can be carried forward indefinitely to be applied against tax liabilities in future years. This carryforward is calculated on Part III of Form 8801, allowing you to track the credit over time.