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Nonrefundable Personal Credits
Alternative Form/Sch.
Minimum Tax Adoption Credit ..............................................................................8839
Alternative Fuel Vehicle Refueling Property Credit ...........................8911
Alternative Motor Vehicle Credit .....................................................8910
America Opportunity Credit and Lifetime Learning Credit .................8863
Incentive Stock Options—AMT Adjustments Child and Dependent Care Expense Credit .......................................2441
The bargain element resulting from exercise of incen- Child Tax Credit ..............................................................................1040
tive stock options (ISO) is equal to the fair market value Credit for Other Dependents ...........................................................1040
Credit for the Elderly and the Permanently and Totally Disabled........ Sch. R
(FMV) of the stock minus the exercise price and is a de- Foreign Tax Credit (see Foreign tax credit and AMT, next column) ....1116
ferral item for AMT purposes. Mortgage Interest Credit ................................................................8396
Nonbusiness Energy Property Credit ...............................................5695
Event Regular Tax Treatment AMT Adjustment Qualified Plug-in Electric Drive Motor Vehicle Credit ........................8936
Exercise No tax due on ISO • Positive AMT adjustment on line 2i, Residential Energy Efficient Property Credit .....................................5695
of ISO exercise. Form 6251, equal to bargain Retirement Savings Contribution Credit ...........................................8880
element.*
• Increase AMT basis of stock by Foreign Tax Credit and AMT
amount of adjustment. The AMT treatment of the Foreign Tax Credit depends
Sale of Tax treatment • Negative AMT adjustment on line 2k, on whether Form 1116, Foreign Tax Credit, is being filed.
stock depends on whether Form 6251, equal to bargain
required holding element.* Taxpayer • Report Foreign Tax Credit on Form 1040.
period is met. • Adjustment is result of previous elects not to • Credit is limited to amount of regular tax.
increase in AMT basis. file Form 1116. • Unused foreign tax may not be carried over.
* No adjustment is made if exercise and sale occur in the same tax year. Taxpayer • Recalculate Foreign Tax Credit using AMT rules.
elects to file • AMT Foreign Tax Credit is used to offset AMT on Form 6251.
Form 3921, Exercise of an Incentive Stock Option Under Sec- Form 1116. • Unused AMT Foreign Tax Credit may be carried back one
tion 422(b), may help in figuring the adjustment. year and carried forward 10 years. [IRC §904(c)]
Example: Cindy exercised an ISO to acquire 100 shares of
stock in 2019. Her rights in the acquired stock first became Credit for Prior Year AMT
transferable on the date she exercised the ISO and were not The adjustments and preferences that result in AMT
subject to a substantial risk of forfeiture. She did not pay are of two types.
anything for the ISO and did not sell the acquired stock 1) Deferral items, such as AMT basis adjustments, are
during 2019. temporary and do not cause a permanent difference
in taxable income over time.
Cindy received Form 3921 that shows $10 in box 3 (the exer-
cise price paid for each share), $25 in box 4 (the fair market 2) Exclusion items, such as taxes from Schedule A (Form
value of each share on the exercise date), and 100 shares in 1040), are not allowed for AMT and therefore cause a
box 5 (the number of shares acquired). To figure the adjust- permanent difference in taxable income.
ment, multiply the amount in box 4, $25, by the 100 shares The potential exists for income from deferral items to be
in box 5. The result is $2,500, the fair market value of all the taxed twice — first under AMT, and again in a later year
shares. Then multiply the amount in box 3, $10, by the 100 under regular tax. A credit against regular tax for prior
shares in box 5. The result is $1,000, the amount paid for all year AMT is available to address this situation.
the shares.

Cindy’s adjustment is $1,500 ($2,500 − $1,000). Contact Us
Potential tax credit. If the AMT adjustment due to ex- There are many events that occur during the year that can affect
your tax situation. Preparation of your tax return involves sum-
ercise of an ISO results in an AMT liability, an AMT marizing transactions and events that occurred during the prior
credit may be available in subsequent tax years. year. In most situations, treatment is firmly established at the
time the transaction occurs. However, negative tax effects can
Personal Credits be avoided by proper planning. Please contact us in advance
if you have questions about the tax effects of a transaction or
An individual can claim nonrefundable personal credits event, including the following:
against regular tax and AMT. • Pension or IRA distributions. • Retirement.
• Significant change in income or • Notice from IRS or other
deductions. revenue department.
• Job change. • Divorce or separation.
This brochure contains general information for taxpayers and • Marriage. • Self-employment.
should not be relied upon as the only source of authority. • Attainment of age 59½ or 70½. • Charitable contributions
Taxpayers should seek professional tax advice for more information. • Sale or purchase of a business. of property in excess of
• Sale or purchase of a residence $5,000.
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