Credit for Prior Year's Minimum Tax

If you paid Alternative Minimum Tax (AMT) previously, or you had an eligible minimum tax credit carryforward, you may be able to claim a tax credit on Form 8801, Credit for Prior Year Minimum Tax.

Planning Tools This IRS form, Credit for Prior Year Minimum Tax is used to compute the amount of any refund available for payment of alternative minimum tax in prior years. Individuals may qualify for a refundable credit against the current year's taxes. Estates and trusts can only qualify for a nonrefundable credit.

Credit for prior year minimum tax liability made refundable. Individuals who owe alternative minimum tax (AMT) attributable to items (such as income from the exercise of an incentive stock option) that defer recognition of income (rather than permanently affect taxable income) have been permitted to apply their minimum tax credit against their regular tax liability, but only to the extent that their regular liability exceeds their tentative minimum tax.

In some cases, a portion of the minimum tax credit can be applied against a taxpayer's entire regular tax liability and is refundable. The AMT refundable credit amount is the greater of (1) the lesser of $5,000 or the long-term unused minimum tax credit or (2) 20 percent of the long-term unused minimum tax credit. The "long-term unused minimum tax credit" for a tax year is the portion of the minimum tax credit attributable to a taxpayer's adjusted net minimum tax for tax years before the third tax year immediately preceding the tax year.

The AMT refundable credit amount is phased out for higher income taxpayers using the same threshold amount and applicable percentage used to phase out personal exemptions. Making the credit refundable provides some relief to individuals who have exercised incentive stock options and subsequently sold the stock at a loss.