Gary,
Thanks, but this is not entirely true in a real world application. Total income plays into the equation. AMT is more convoluted than this and is not 100% tied to the trade of a specific block of equity when it comes time to exit. I avoided AMT for awhile but now have been contributing for 3 years. My accountant tells me that I will eventually get it back but for now consider it a loan to the govt.
fairmark.com
AMT Credit
Here's good news: a portion of your AMT liability — perhaps all — may reduce the tax you pay on future tax returns. Working with this AMT credit is a two-step process. First you find out how much credit is available, then you find out how much of the credit you can use.
Find the Available Credit
The first part of your task is to find out how much of the AMT liability from a prior year is eligible for the credit. This involves calculating the alternative minimum tax under a different set of rules — sort of an alternative AMT. What you're doing here is finding out how much of your alternative minimum tax liability came from timing items: items that allow you to delay reporting income, as opposed to items that actually reduce the amount of income or tax you report. If you're lucky, your entire AMT will be available as a credit in future years. But some people find that only a small portion, or none at all, is available for use as a credit.
Determine How Much AMT Credit You Can Use
If you have some AMT credit available from a prior year, you have to determine how much of the credit you can use in the current year.
**** You can only use the AMT credit in a year when you're not paying alternative minimum tax.******
The amount of credit you can use is based on the difference between your regular tax and the tax calculated under the AMT rules.
Example: Suppose you have $8,000 of AMT credit available from 1997. In 1998 your regular tax is $37,000. Your tax calculated under the AMT rules is $32,000. You don't have to pay AMT because your regular tax is higher than the tax calculated under the AMT rules. Better still, you're allowed to claim $5,000 of AMT credit, reducing your regular tax to $32,000.
In this example, you would still have $3,000 of AMT credit you haven't used. That amount will be available in 1999. In tax lingo, it's carried forward.
Of course, you can't claim more than the amount of the available credit. In the example, if the AMT credit available from 1997 was $2,700, then you would use the full amount of the credit in 1998. You would reduce your regular tax to $34,300 — not all the way to $32,000.
|
