How do AMT credits work?

June 16, 2000

Date:   31 May 2000
From:   Rhonda

I have read that you cannot receive the AMT credit in a year in which you also pay AMT. Is this true? If so, does the AMT credit carry over forever or does it expire after a certain number of years. I have been granted stock options over a four-year period and could potentially pay AMT for four consecutive years before I am ever eligible for a credit. I just want to make sure I will one day get credit from the IRS. Thanks.


Date:   Wed, 7 Jun 2000

Hello Rhonda,

The AMT credit is not subject to a date expiration. (For example, it doesn’t expire after 10 years.)

It can be reduced because of deductions that are disallowed for the AMT, but not for regular income tax computations. An example would be deductions for state income taxes.

In some cases, taxpayers find it almost impossible to recover all of their AMT credits. The maximum income tax rate that applies for long-term capital gains for both the regular tax computation and the AMT computation is 20%. The maximum tax rate that applies in the AMT computation for other income, including ISO tax preference, is 28%. That means you probably won’t recover all of the credit when you sell your stock.

Sorry I can’t assure you you’re going to recover all of your AMT credits.

Good luck!

Mike Gray

For more information about incentive stock options, request our free report, Incentive Stock Options – Executive Tax and Financial Planning Strategies.

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