Under the Tax Relief and Health Care Act of 2006, enacted on December 20, 2006, new rules were added to permit a refundable credit for certain old unused alternative minimum tax credits. As a result, an individual's minimum tax credit that is allowable for any tax year beginning before 2013 cannot be less than the "AMT refundable credit amount," which is the greater of:
(i) The lesser of $5,000 or the long-term unused minimum tax credit; or
(ii) 20 percent of the long-term unused minimum tax credit.
The long-term unused minimum tax credit for any tax year is the portion of the minimum tax credit attributable to the adjusted net minimum tax (ANMT) for tax years before the third tax year immediately preceding the current tax year. For this determination, credits are treated as allowed on a first-in, first-out basis.
The minimum tax credit for any tax year is the excess (if any) of the ANMT for all prior tax years beginning after 1986 over the minimum tax credit allowable for those years.
The ANMT generally is the net minimum tax reduced by the amount that would have been the net minimum tax if only exclusion-type preferences and adjustments were considered.
The new refundable credit is reduced by the percentage reduction in the personal exemption deduction if an individual's adjusted gross income (AGI) for any tax year exceeds the threshold for phasing-out that deduction.
Example (1):
John has unused AMT credit carryover from 2003 to 2007 of $3,000, and doesn’t have enough AMT income (AMTI) for a phaseout. John would be refunded $3,000 under (i) above.
Example (2):
Jane has unused AMT credit carryover from 2003 to 2007 of $100,000, and doesn’t have enough AMTI for a phaseout. Jane would be refunded $20,000 under (ii) above.
If the minimum tax credit determined under the "old law" for a taxable year is greater than the refundable credit, no additional refundable credit is allowed. The refundable credit is phased out for higher-income taxpayers based on the same ratio as applies to phase out personal exemptions. The phase out is two percentage points for each $2,500, or $1,250 for married persons filing a separate return, (or fraction thereof) by which the taxpayer’s adjusted gross income exceeds certain threshold amounts, to a maximum of 100%. For 2007, the threshold amounts are $234,600 for joint filers or a surviving spouse, $195,550 for a head of household, $156,400 for single taxpayers, and $117,300 for married persons, filing separately.
Example (3):
Jane, a single person who is not a head of household, would otherwise qualify for a refundable credit of $20,000 for 2007. Her adjusted gross income is $200,000. Her phaseout is $200,000 - $156,400 = $43,600 / $2,500 = 18% (rounded) X 2% =36%. Her allowable credit is 100% - 36% = 64% X $20,000 (tentative refundable credit) = $12,800.
Example (4):
In 2007, John's AGI causes a 50 percent reduction in his personal exemption deduction. John's regular tax is $45,000 and his tentative minimum tax is $40,000. His minimum tax credit for 2007, before the limitation, is $1.1 million, of which $1 million is a long-term unused minimum tax credit.
The 2007 AMT refundable credit is $100,000 (20 percent of the $1 million long-term unused minimum tax credit less the 50 percent reduction mentioned at the beginning of this example). The 2007 minimum tax credit allowable also is $100,000 (the greater of the AMT refundable credit or the credit otherwise allowable).
The $5,000 credit allowable without regard to this new law is not refundable. However, the additional $95,000 credit allowable under the new law is refundable. Thus, John has a $55,000 overpayment. The remaining $1 million minimum tax credit is carried forward.
For a draft copy of the tax form used to claim the tax credit, click here.
