AMT Credit
Also: AMT credit, minimum tax credit, MTC, prior year AMT credit
A federal credit for AMT paid in a prior year attributable to timing preferences such as ISO exercises. Recovers in later years when regular tax exceeds tentative minimum tax.
The AMT credit, formally the minimum tax credit, lets a taxpayer recover AMT paid in prior years that was attributable to deferral items rather than exclusions. The ISO bargain element at exercise is a deferral item, because the same economic income eventually flows through the regular tax when the shares are sold. The credit is computed on Form 8801 and is applied against the amount by which regular tax exceeds tentative minimum tax in each subsequent year.
Example: an engineer exercises ISOs in 2024 and pays $85,000 of AMT. In 2025, her regular tax is $180,000 and tentative minimum tax is $150,000. She can apply $30,000 of the AMT credit in 2025. The remaining $55,000 carries forward to 2026 and later years. Large credits sometimes take five or more years to fully recover.
Common mistake: forgetting to file Form 8801 every subsequent year, even when no credit can be used. The carryforward only survives if claimed on the return.
The AMT credit matters every year after any AMT-generating event, at sale of ISO shares (which also affects basis), and at long-term tax projections that include AMT recovery as an income offset.