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What is the prior year minimum tax credit?

The prior year minimum tax credit is a credit that reduces your taxes in a future year for alternative minimum tax (AMT) that you paid in a prior year.

AMT is calculated by adding back certain adjustments and preferences - deferral items and exclusion items. Deferral items are adjustments between regular tax and AMT tax that aren’t permanent. An example would be depreciation. Exclusion items are adjustments and preferences between regular and AMT tax that are permanent. The standard deduction is an example of this.

If you do not owe AMT for the tax year, but you paid AMT in one or more previous years, you may be eligible to take a minimum tax credit against your regular tax this year. You’re only eligible for this credit for the portion of the AMT you paid that was caused by deferral items, such as depreciation. If you paid AMT on a prior year return, you can enter certain information on the Prior Year Minimum Tax screen and Credit Karma Tax will determine whether you qualify for this credit. If eligible, the credit will be calculated on Form 8801, Credit for Prior Year Minimum Tax.

Keep in mind the credit is nonrefundable. This means the credit is limited to the amount you owe for taxes.

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