Message Font: Serif | Sans-Serif
No. of Recommendations: 0
What are "preference items", and is it good to have them, or bad? Also, how do you get AMT credits that carry over from year to year?

I believe that there's an article in the FAQ that goes into more detail. But in a nutshell preference items are a bad thing where AMT is concerned. They can increase your taxes.

There's two types of items that cause differences between taxable income for regular and AMT purposes.

First are preferences. Preferences are things that are generally not deductible for AMT purposes. These include taxes, medical expenses over 10% of your AGI (rather than the 7.5% for regular tax purposes), miscellaneous itemized deductions, and some rather esoteric things like depletion. These items will always increase your AMT taxable income as compared to your regular taxable income.

The second difference is from timing adjustments. These are items that are recognized at different times for the two tax schemes. Over a sufficient number of years, the total income or deductions for these items will be the same for AMT and regular tax, but they will be recognized in different years. A couple of examples are depreciation (AMT uses different depreciation schedules than regular tax) and incentive stock options (AMT doesn't allow the deferral that the regular tax does). These items can cause your AMT taxable income to be higher OR LOWER than your regular taxable income.

I'm sure there are plenty of other examples - you could check the instructions for form 6251 for a more complete list.

It is those second type of items, the timing ones, that can cause an AMT credit. To the extent that you pay AMT due to a timing difference, you are allowed a credit on your regular tax in the year that the timing difference reverses. This keeps you from paying a tax twice on the same income.

Print the post  


In accordance with IRS Circular 230, you cannot use the contents of any post on The Motley Fool's message boards to avoid tax-related penalties under the Internal Revenue Code or applicable state or local tax law provisions.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.