You may be entitled to a Minimum Tax Credit (MTC) for Alternative Minimum Tax (AMT) that you incurred in prior tax years. An Minimum Tax Credit may be available if you had, for the prior year:
(1) an AMT liability and adjustments or preferences other than exclusion items,
(2) a credit carryforward to the current year; or
(3) an unallowed qualified electric vehicle credit. You report the credit on your Form 1040 as a credit against your regular tax.
The AMT is caused by two types of adjustments and preferences:
- deferral items, and
- exclusion items.
Deferral items (for example, depreciation) generally do not cause a permanent difference in taxable income over time. Exclusion items (for example, the standard deduction), on the other hand, do cause a permanent difference. The MTC is allowed only for the AMT caused by deferral items.
The Minimum Tax Credit for any tax year is the excess (if any) of:
(1) your adjusted net minimum tax imposed for all prior tax years beginning after 1986, over
(2) the amount allowable as a credit for those prior tax years.
Your adjusted net minimum tax for any tax year is the amount by which the minimum tax for that tax year exceeds the amount that would be the minimum tax for that tax year if only the exclusion items were taken into account.
The Minimum Tax Credit for a tax year cannot exceed:
(1) your regular tax liability for the tax year, reduced by allowable credits, over
(2) your tentative minimum tax for the tax year. Your tentative minimum tax is the same as the tentative minimum tax determined for AMT purposes.
A special rule applies if you have long-term unused credits. In general, if you have a long-term unused Minimum Tax Credit for any tax year beginning before January 1, 2013, the Minimum Tax Credit limitation for the year cannot be less than the AMT refundable credit amount for that tax year. The AMT refundable amount is the amount (not in excess of the long-term unused Minimum Tax Credit for the tax year) equal to the greater of 50 percent of the long-term unused Minimum Tax Credit for the tax year, or the amount (if any) of the AMT refundable credit amount for your preceding tax year. For this purpose, a long-term unused MTC with respect to any tax year is the portion of the MTC attributable to the adjusted net minimum tax for tax years before the third tax year immediately preceding that tax year. Credits are treated as allowed on a first-in, first-out basis.
Please contact the office of Don Fitch Accountancy at (760)567-3110 or Email Don.Fitch@CPA.com if you have any questions or would like additional information.
DON FITCH, CPA
74478 Highway 111 #3
Palm Desert, CA 92260
Toll Free: (877)CPA-Help or (877)272-4357
P.S. My firm is based upon referrals. Please feel free to refer my firm to anyone you know that is looking for a new CPA and/or tax preparer. Thank you in advance.