Credits.

Credits are allowed against AMT for foreign taxes and certain specified business credits.

The AMT foreign tax credit limitation is redetermined based on AMTI rather than regular taxable income. Thus, all adjustments and tax preference items above must be applied in computing the AMT foreign tax credit limitation.

AMT credit against regular tax.

After a taxpayer has paid AMT, a credit is allowed against regular tax in future years for the amount of AMT. The credit for individuals is generally limited to the amount of AMT generated by deferral items (for example, exercise of incentive stock options), as opposed to exclusion items (for example, state and local taxes). This credit is limited so that regular tax is not reduced below AMT for the year. Taxpayers may use a simplified method under which the AMT foreign tax credit limit is computed proportionately to the regular tax foreign tax credit limit. IRS Form 8801 is used to claim this credit.

Complexity.

The AMT is a tax of roughly 28% on adjusted gross income over $186,300 plus 26% of amounts less than $186,300 minus an exemption depending on filing status after adding back in most deductions. However, taxpayers must also perform all of the paperwork for a regular tax return and then all of the paperwork for Form 6251. Furthermore, affected taxpayers may have to calculate AMT versions of all carryforwards since the AMT carryforwards may be different from regular tax carryforwards. Once a taxpayer qualifies for AMT, he or she may have to calculate AMT versions of carryforward losses and AMT carryforward credits until they are used up in future years. The definitions of taxable income, deductible expenses, and exemptions differ on Form 6251 from those on Form 1040.

The complexity of the AMT paired with the history of last-minute annual patches adjusting the law create tax liability uncertainty for taxpayers. For the last ten years, Congress has passed one-year patches to mitigate negative effects, but they are typically passed close to the end of the year. This makes it difficult for taxpayers to determine their tax liability ahead of time. In addition, because the AMT was not indexed for inflation until 2013, the cost of annual patches rises every year.