AMT CREDIT

The alternative minimum tax credit (AMT) is a frequently misunderstood and overlooked tax credit. Oversimplified, the AMT credit is the result of incurring an AMT in a prior year, which generates a credit that can be used to offset the excess of the taxpayer’s regular tax over the alternative minimum tax in a subsequent year, with unused credit carried forward to future years.

It doesn’t mean that you will have an AMT credit just because you were affected by the AMT. The credit is the result of having an AMT adjustment known as a “deferral item of preference.” Sound complicated? It can be, but generally the deferral item that affects most taxpayers is the result of exercising a qualified stock option (frequently referred to as an “incentive stock option or ISO) but not selling the shares acquired through the option in the same year the option was exercised. Roughly speaking, the credit amount is the difference between the AMT computed with and without the deferral item of preference.

If you were unfortunate enough to have been affected by the alternative minimum tax (AMT) in a prior year, then you may have a carryover of an unused minimum tax credit.