Topic Number 556 - Alternative Minimum Tax

Under the tax law, certain tax benefits can significantly reduce a taxpayer's regular tax amount. The alternative minimum tax (AMT) applies to taxpayers with high economic income by setting a limit on those benefits. It helps to ensure that those taxpayers pay at least a minimum amount of tax.

How Is the AMT Calculated?

The AMT is the excess of the tentative minimum tax over the regular tax. Thus, the AMT is owed only if the tentative minimum tax is greater than the regular tax. The tentative minimum tax is figured separately from the regular tax. In general, compute the tentative minimum tax by:

  1. Computing taxable income eliminating or reducing certain exclusions and deductions, and taking into account differences with respect to when certain items are taken into account in computing regular taxable income and alternative minimum taxable income (AMTI),
  2. Subtracting the AMT exemption amount,
  3. Multiplying the amount computed in (2) by the appropriate AMT tax rates, and
  4. Subtracting the AMT foreign tax credit.

 

The law sets the AMT exemption amounts and AMT tax rates. Taxpayers can use the special capital gain rates in effect for the regular tax if they're lower than the AMT tax rates that would otherwise apply. In addition, some tax credits that reduce regular tax liability don't reduce AMT tax liability.

Am I Subject to the AMT?

To find out if you may be subject to the AMT, refer to the Alternative Minimum Tax (AMT) line instructions in the Form 1040 Instructions.

Am I Eligible for a Tax Credit?

If you're not liable for AMT this year, but you paid AMT in one or more previous years, you may be eligible to take a special minimum tax credit against your regular tax this year. If eligible, you should complete and attach Form 8801.pdf, Credit for Prior Year Minimum Tax - Individuals, Estates, and Trusts, to claim the minimum tax credit.