Tax Benefit Rule, State Tax Refund, and AMT?

In Year 1, person itemizes deductions and is in the AMT.

In Year 2, person gets a $500 state income tax refund. However, because of the AMT, even if his Year 1 state income tax deduction had been $500 lower, his tax liability would have been exactly the same. Question -- since taxpayer got no benefit from the "excess" $500 Year 1 deduction, can the $500 refund be excluded in Year 2? If so, how do you properly show that the refund should not be including? Just don't put it on the return and be prepared to trade letters with the IRS?

-- Rich Carreiro snipped-for-privacy@animato.arlington.ma.us

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Reply to
Rich Carreiro
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My tax software has an entry to indicate the amount of the refund for which there was no tax benefit due to AMT. I figure that's good enough until (unless) the IRS comes asking.

-- Tom Healy, CPA Boulder, CO Web:

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Reply to
Thomas Healy

Just don't put it on the return. I've never gotten a letter in that situation. Phoebe :)

Reply to
Phoebe Roberts, EA

Whenever I have a client who has a state income tax refund that turns out to be excludible (e.g. no Schedule A in the prior year - but the exact reason doesn't matter), I don't leave line 10 blank but specifically put in a zero.

Does that answer your question on how to show it?

Reply to
D. Stussy

My software also has this function, even better it pro formas the amount of non-taxable amount for the following year that isn't taxable due to AMT.

-- David M. Woods, EA, ChFC, CLU Woods Financial Services Norwood, MA 02062

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Reply to
David Woods, EA, ChFC, CLU

What do you do if the state income tax overpayment produces a capital gains rate based tax benefit equal to 10 percent of the overpayment(portions of capital gains are taxed at the 5 and 15 percent rates) when the AMT is paid? If the AMT is paid in the refund year the refund entered on Line 10 of the 1040 is excluded from AMTI by the entry on Line 7 of Form 6251. But what if only the regular tax is paid in the refund year. Should the taxpayer be taxed at the AMT rate on the income used for the tax overpayment and then be taxed at the regular tax rate on the refund?

Reply to
KEBSCHULLW

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