---
title: AMT Credit & Alternative Minimum Tax Explained
description: Learn what the Alternative Minimum Tax is and get information and tips about how to claim the AMT Credit to recoup some of your expenses.
image: https://blog.cmp.cpa/hubfs/Alternative%20Minimum%20Tax%20Explained%20(How%20AMT%20Tax%20Works)%20-%201-1.jpg
---
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# Alternative Minimum Tax Explained (How AMT Tax Works)
October 16, 2024 By [Jared Ripplinger](https://blog.cmp.cpa/author/jared-ripplinger)
AMT Credit & Alternative Minimum Tax Explained
11:37
*Originally Published August 23, 2022, Updated June 19, 2024.*
It's common for high-income taxpayers to do what they can to minimize the amount of taxes they pay. They can do so in various ways by [reducing their taxable income](https://blog.cmp.cpa/reduce-taxable-income-high-earners), timing the sale of long-term capital gains, or taking deductions. However, some limits in place may curb some of the tax benefits otherwise available. The Alternative Minimum Tax, or AMT, is one such limit on tax breaks.
.jpg?width=800&name=Alternative%20Minimum%20Tax%20Explained%20(How%20AMT%20Tax%20Works).jpg)
At CMP, we work with high earners daily to help them take advantage of all available tax [deductions and tax credits](https://blog.cmp.cpa/tax-credit-vs-deduction). The Alternative Minimum Tax is something that can be confusing since it generally affects only high-income earners. We've created this overview to help you understand what the AMT is how it works—and how you can offset what you pay with the AMT credit.
## What is the Alternative Minimum Tax (AMT)?
The [Alternative Minimum Tax was first established back in 1969](https://taxfoundation.org/tax-basics/alternative-minimum-tax-amt/#:~:text=The%20Alternative%20Minimum%20Tax%20(AMT)%20is%20a%20separate%20tax%20system,rates%20than%20the%20ordinary%20system.) to prevent the wealthiest taxpayers from avoiding paying taxes. Treasury Secretary Joseph Barr testified before Congress that in 1966, 155 wealthy Americans had paid nothing in taxes. Congress had to make a choice. They considered eliminating some of the tax preferences that accrue to high-income taxpayers but decided against that in favor of creating a minimum tax.
Taxpayers in the highest brackets must calculate their taxes in two ways to determine whether they must pay the AMT. They calculate the standard way, then recalculate tax after applying AMT adjustments, and tax must be paid based on the higher of the two results.
### AMT Exemption Amounts
To calculate the AMT and determine whether they need to pay it, taxpayers must add certain deductions back into their income to calculate the Alternative Minimum Tax Income (AMTI). Once they have done that, they subtract the allowed exemptions.
The AMT exemption amounts are as follows.
- For the 2023 tax year, the AMT exemption for individual filers is $81,300, and for married joint filers, the exemption is $126,500.
- For the 2024 tax year, the AMT exemption for individual filers is $85,700, and for married joint filers, the exemption is $133,300.
If their AMT is less than the exemption after subtracting the AMT exemption, they are not required to pay AMT. However, there are exceptions for the highest earners. Any taxpayer with an AMTI over the specified threshold does not qualify for the AMT exemption.
The phase-out for the AMT exemption starts at $578,150 for individuals and $1,156,300 for [married couples filing jointly](https://blog.cmp.cpa/married-filing-jointly-vs-separately) for the 2023 tax year—those amounts for the 2024 tax year increase to $609,350 and $1,218,700 respectively.
After a taxpayer calculates their AMT and applies for the exemption, both single and married taxpayers will be taxed at a rate of 26% on AMTI below $197,900 and 28% for income $197,900 and over.
More details on the graphic below.
[\*graphic courtesy of NerdWallet](https://www.nerdwallet.com/article/taxes/alternative-minimum-tax-amt)
### How to Determine if You Must Pay the AMT
You will need to use IRS Form 6251 to determine whether you need to pay the Alternative Minimum Tax. You can find the form and instructions [here](https://www.irs.gov/pub/irs-pdf/f6251.pdf).
When you look at the form, you will note that Line 2 contains a large list of line items (or adjustments) that you must enter to determine whether you are required to pay the AMT. Some of these items cannot be used toward an AMT credit, including tax payments and [home equity mortgage interest](https://blog.cmp.cpa/is-home-equity-loan-interest-tax-deductible).
Some high-income earners use Form 6251 to keep track of their income and try to anticipate whether they will need to pay the AMT in any given year. We will talk more about that later.
## What is the AMT Credit on Taxes, and How Does it Work?
Perhaps the biggest downside of the AMT is that it requires high-income taxpayers to pay taxes on some income, even if it hasn't been earned. The most common situation where the AMT applies is when an individual or married couple has incentive stock options (ISOs.)
Let's look at an example to explain why an ISO might lead to you needing to pay the AMT even if you haven't realized the income from them. Say you had 150 ISOs ready to exercise. The strike price might be only $3 per share for a total value of $450, but the fair market value of the stocks might be $300 per share for a potential sale value of $45,000.
That means you have a cost basis of $450 while the shares have a market value of $45,000. By subtracting the cost basis from the market value, you can see an unrealized profit of $44,550. You could be on the hook to pay $11,583 in AMT if you fall into the income bracket for the 26% rate.
The AMT credit allows you to offset your eventual capital gain when you sell those stocks by applying your previously paid AMT against your capital gains tax.
[](https://hubspot-cta-redirect-na2-prod.s3.amazonaws.com/cta/redirect/1853761/a6b63f9c-265c-4102-8088-72e0382b34bf)
## How Do You Qualify for the AMT Credit?
Qualification for the AMT credit is based on whether an amount you paid AMT for is deferred or excluded. Excluded items may not be recouped with the AMT credit, but deferred items may be.
Here is a list of items that qualify as deferred and can help you qualify for the AMT credit.
- Depreciation
- Exercise of stock options
- Installment sales
- Large partnerships
- [Passive activities](https://blog.cmp.cpa/passive-income-tax)
Some examples of AMT exclusions include the following items.
- Standard deduction
- Taxes paid
- Tax-exempt interest (on private activity bonds)
- Home equity [mortgage interest](https://blog.cmp.cpa/tax-benefits-of-owning-a-home)
- [Miscellaneous itemized deductions](https://blog.cmp.cpa/miscellaneous-itemized-deductions)
- [Depletion adjustments](https://blog.cmp.cpa/understanding-depreciation-deduction)
AMT exclusions are never creditable under AMT rules. If you have paid AMT taxes on these items, no mechanism will allow you to get the money back.
## How Much AMT Credit Can You Claim?
There is a limit on how much AMT credit you can claim in a single year. When you file your tax return, you will need to calculate your regular tax liability. If you paid AMT on your ISOs and then sold them in another year, you would need to calculate your regular tax liability for that year.
The amount of AMT credit you can take in any given tax year is limited. You may not take an AMT credit that would result in you paying less than your regular tax liability as calculated based on your earnings in the year.
What that means is that if you have paid a high amount of AMT due to ISOs or another unrealized profit, it could take you years to recover your entire credit. Fortunately, it is possible to carry the credit forward. We will talk about that next.
## How Many Years is the AMT Credit Carryforward?
As we mentioned in the previous section, there is an option to carry the AMT credit forward to years when you have realized income on items that you previously were required to pay the Alternative Minimum Tax.
Because of the annual limitations on the AMT credit, it may take several years to claim the entire credit you are due. As we noted above, you may only claim an amount that would reduce your taxes to the amount of your regular tax liability. You should also know that you may only claim an AMT credit in a year when you are not required to pay AMT.
Keep in mind that you must omit any exclusion items when calculating your AMT credit. When the original AMT was created, the carryforward period was six years. If you could not claim your entire credit in six years, any remaining amounts of AMT that you paid were forfeited.
Under current tax law, you can carry forward your AMT credit for up to 20 years. For most taxpayers, that length of time will be sufficient to ensure that they can claim the entire credit due to them.
## How to Claim the AMT Credit
Claiming the AMT credit can be a complex process due to the necessity of evaluating the various income sources and determining which sources are deferred items versus exclusion items. As a reminder, only deferred items may be used to determine how much the AMT tax credit is and claim the credit.
You will need to use Form 8801 to calculate and claim the AMT tax credit. You can find the form and instructions on the IRS website [here](https://www.irs.gov/forms-pubs/about-form-8801).
As noted above, you must also use Form 6251 to determine whether you must pay AMT. If you are not, then you will pay the amount of your regular tax liability. However, you should still use Form 8801 to calculate the amount of the credit you are due. You can carry it forward to your next eligible tax year for a maximum carry-forward of 20 years.
We should note that many taxpayers, even those with some financial expertise, find the laws and calculations regarding the AMT credit to be confusing. We suggest working with an income [tax professional](https://cmp.cpa/) to ensure that your calculations are correct and that you claim the maximum credit you are due.
## Are AMT Credits Allowed to Carry Forward Under New Tax Law?
The Tax Cuts and Jobs Act of 2017 expanded the carryforward period for the AMT credit. As of 2007, the AMT credit could only be carried forward for a maximum of six years. The TCJA increased the AMT tax carryforward option to 20 years, making it far easier for those required to pay the AMT to recoup some of their taxes in subsequent years.
We always monitor changes in the tax code and will update this post if the carryforward period changes.
## Tips to Keep Track of Your AMT Liability and the AMT Credit
We'll close with a few tips to help you anticipate your AMT liability in years when you are required to pay the AMT and to ensure that you calculate your AMT credit properly and claim the allowable amount.
- Use tax planning software to track your income over the course of the year. You can use the income thresholds we've included in this post to help you calculate additional taxes on things like ISOs and understand whether the AMT will apply to you.
- When you [prepare your tax return](https://cmp.cpa/services/income-tax-services/), use Form 6251 to see if you will be required to pay the AMT. You may also choose to use Form 6251 as a benchmark throughout the year to prepare in the event that you are required to pay AMT.
- If you have ISOs, consult with a tax professional to determine the most advantageous timing for selling them and realizing any profits that may have led to you paying the AMT in a previous tax year.
The most important advice we can give you is to work with an experienced tax professional to calculate your AMT and AMT credit. As we noted above, the calculations required to complete your income tax return when the AMT or AMT credit applies are complex, and getting the details right is essential. This will also require you to save copies of prior year tax returns and Forms 6251.
## Recoup Tax Dollars with the AMT Tax Credit
The Alternative Minimum Tax can increase the complexity of filing your tax return and add to your tax bill. You can recoup some of the amounts you pay using the AMT tax credit, which, as of 2024, may be carried forward for up to 20 years.
Do you need assistance calculating your AMT or AMT credit? CMP has the experience to help!
[](https://blog.cmp.cpa/hs/cta/wi/redirect?encryptedPayload=AVxigLIifsjBMeHdM2izSed5VQC6%2F1vcnYat09kfICXLxfG%2FU3c%2FGLrGr2sWRfvRl886phOn9ChPskTdPzfTFZ%2B3OthZMQ9aWH6fdr2DJBHbjpIWrPUcJC1u22C5CUWpPV3PlI%2B%2FOcagFzVOdLPYbfdR1mWKrCSyqjmuO%2BiQiQ%2F5kOOcxPuQ1nLs8vjfuGu4O6AmlzH0OhVwn4an4WPUBh%2Ff3d2YWXm1MQw%3D&webInteractiveContentId=208861202306&portalId=1853761)
*This content is for educational purposes only and may not apply to your specific tax situation. Tax laws are complex, subject to change, and depend on individual circumstances. Consult a qualified tax advisor before relying on this information.*
[](https://cmp.cpa/team/jared-ripplinger/)
About Jared Ripplinger
Jared has been preparing tax returns and helping clients with various accounting and tax needs since 2001. He started his career in public accounting at a CPA firm in California before returning to his roots in Cache Valley. He has a broad range of accounting and tax advising experience in several industries, including manufacturing, construction, retail, and working with a variety of closely held businesses in various industries. As a Certified Valuation Analyst in the firm, he also provides a variety of Business Valuation services, from consulting to expert testimony and from IRS compliance to strategic planning and transactions.
[Read Full Bio](https://cmp.cpa/team/jared-ripplinger/)
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```json
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"@type" : "BlogPosting",
"author" : {
"@type" : "Person",
"name" : "Jared Ripplinger",
"url" : "https://blog.cmp.cpa/author/jared-ripplinger"
},
"dateModified" : "2024-06-19",
"datePublished" : "2022-08-23",
"description" : "The Alternative Minimum Tax is a parallel tax system designed to ensure high-income taxpayers pay at least a minimum amount of tax. This article explains how the AMT works, current exemption amounts, how to know if you owe AMT, and how you may be able to recover some of what you pay through the AMT credit.",
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"@type" : "Question",
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"@type" : "Answer",
"text" : "The Alternative Minimum Tax is a separate tax system created to prevent high-income taxpayers from using deductions and tax preferences to avoid paying income tax. Taxpayers who are subject to AMT must calculate their tax twice—once under the regular rules and once under AMT rules—and then pay whichever amount is higher."
},
"name" : "What is the Alternative Minimum Tax (AMT)?"
}, {
"@type" : "Question",
"acceptedAnswer" : {
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"text" : "To calculate AMT, taxpayers add certain adjustments and preferences to arrive at Alternative Minimum Taxable Income and then subtract the AMT exemption. For the 2023 tax year, the exemption is $81,300 for single filers and $126,500 for married couples filing jointly. For 2024, the exemption increases to $85,700 for single filers and $133,300 for married couples filing jointly, with phaseouts beginning at higher income levels."
},
"name" : "What are the AMT exemption amounts?"
}, {
"@type" : "Question",
"acceptedAnswer" : {
"@type" : "Answer",
"text" : "You determine whether you owe AMT by completing IRS Form 6251. The form walks through the required adjustments and preferences, calculates your Alternative Minimum Taxable Income, and compares AMT to your regular tax to show whether the AMT applies for the year."
},
"name" : "How do you determine if you must pay the AMT?"
}, {
"@type" : "Question",
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"text" : "The AMT credit allows you to recoup some Alternative Minimum Tax paid on certain types of income, most commonly on incentive stock options. When you later recognize taxable income on those items, you may be able to use the credit to reduce your regular tax, subject to limitations, until you recover the AMT previously paid."
},
"name" : "What is the AMT credit and how does it work?"
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"text" : "You may qualify for the AMT credit when your AMT was triggered by deferred items such as depreciation differences, incentive stock options, installment sales, certain large partnerships, or passive activity adjustments. Amounts related to exclusion items like the standard deduction, some taxes, and certain types of interest do not generate AMT credit."
},
"name" : "How do you qualify for the AMT credit?"
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"@type" : "Question",
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"text" : "In any given year, the AMT credit you may use is limited so that your total tax does not fall below your regular tax liability. If you paid a large amount of AMT in a prior year, it may take several years to fully use the available credit because of this limitation."
},
"name" : "How much AMT credit can you claim?"
}, {
"@type" : "Question",
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"text" : "Under current tax law, you may carry forward unused AMT credit for up to 20 years. If you cannot use the entire credit in one year due to the regular tax limitation, you can continue to apply the remaining credit in future years when you are not subject to AMT."
},
"name" : "How many years is the AMT credit carryforward?"
}, {
"@type" : "Question",
"acceptedAnswer" : {
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"text" : "To claim the AMT credit, you use IRS Form 8801, Credit for Prior Year Minimum Tax. You also use Form 6251 to determine whether you owe AMT for the current year. Form 8801 calculates how much AMT credit you can use this year and how much, if any, you may carry forward to future years."
},
"name" : "How do you claim the AMT credit?"
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"@type" : "Question",
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"text" : "Yes. The Tax Cuts and Jobs Act extended the carryforward period for the AMT credit, allowing eligible taxpayers to carry unused credit forward for up to 20 years, compared with a much shorter period under older rules."
},
"name" : "Are AMT credits allowed to carry forward under current tax law?"
}, {
"@type" : "Question",
"acceptedAnswer" : {
"@type" : "Answer",
"text" : "You can use tax planning software and Form 6251 to monitor whether you are approaching AMT thresholds, especially if you have incentive stock options or other AMT-sensitive items. Keeping copies of prior-year returns, Forms 6251, and Forms 8801 helps you track how much AMT you have paid and how much credit remains available."
},
"name" : "What are some tips to keep track of your AMT liability and AMT credit?"
}, {
"@type" : "Question",
"acceptedAnswer" : {
"@type" : "Answer",
"text" : "If you are required to pay the Alternative Minimum Tax, the AMT credit may allow you to recover some of that tax in later years when deferred income becomes taxable. By correctly tracking your AMT and using Form 8801, you can apply the credit to reduce future regular tax and recoup some of the dollars paid under the AMT system."
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```