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Alternative Tax Questions

Individuals contemplating an alternative tax method will have many decisions and questions throughout the whole process. Uncertainties on what alternative tax net operating loss means or if mortgage interest can be claim under alternative tax often lead to questions like the ones answered below.

What is the meaning of alternative tax net operating loss deduction?

Alternative tax net operating loss deduction refers to the excess deductions that are allowed over the income that is recognized for Alternative Minimum Tax (AMT) purposes. Alternative tax net operating loss is calculated in much the same way as Net Operating Losses (NOL) except that they have extra rules governing deductions, exclusions and preferences that are related to alternative minimum tax. The amount of alternative tax net operating loss that can be deducted when finding out the AMT income cannot exceed 90%.

On Form 6251 - line 27, how is Alternative tax net operating loss deduction calculated?

When Net operating loss for alternative minimum tax (AMT NOL) is calculated, it is based on net operating loss for regular tax purposes with adjustments. AMT NOL is similar to NOL with some alterations. One modification is that the loss is typically calculated through a process where the taxable income is adjusted per the adjustment amounts mentioned in the IRC rules and reduced by the sum of tax preference items. That formula can be broken down to show Regular Tax NOL + AMT depreciation Adjustment + Preference Items = AMT NOL

We made $121,000 last year and have a mortgage interest of $33,000. It was refinanced over a year ago same house for 20 years, no fixing up in the refinance just paid some bills. Can I claim the interest under alternative tax?

Alternative minimum tax does allow mortgage interest deduction. Deductions that you cannot claim for AMT purposes include property taxes, state taxes and local income taxes. The way to figure out what your AMT may be is to calculate regular income tax liability on Form 1040 and then calculate income tax liability under AMT on Form 6251. If your AMT liability is higher, the difference would be the amount of AMT you need to pay. If it is less, no additional AMT would be owed.  

A client has a $215,000 loss in 2008 which they would like to file Form 1045 for a tentative refund for 2006. However, the individual had a $247,000 in income in 2006. When carrying back this NOL to 2006, it seems to produce AMT that negates any refund.

Carrying back a net operating loss can incur alternative minimum tax for previous years. The proper way to handle the carryback would be to calculate an AMT NOL for 2008 and carry that back against the alternative minimum tax income for 2006. If by using Form 1045 you cannot do these calculations, you may need to use Form 1040X for 2006 to allow the calculations to go through.

Can the refund for an alternative minimum tax credit be larger than the amount of the alternative tax actually paid in?

The alternative minimum tax credit refund cannot be more than the AMT amount that was previously paid. Refundable credits are limited to the alternative minimum tax paid in the previous years.

While some of the questions above may have clarified a few of your own doubts regarding AMT, there could be other queries you may have that are related to your own case. . Put them to an Expert now who can offer insights and information, both quickly and affordably, to help with your case.
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