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What is Form 6251: Alternative Minimum Tax

Posted By Jim On 03/08/2011 @ 4:48 pm In Taxes | 12 Comments

Form 6251: Alternative Minimum Tax (Individuals) [3] is the form taxpayers must fill out to determine whether or not they are subject to the dreaded Alternative Minimum Tax [4] (AMT). The AMT is another way of calculating your tax liability and those subject to its wrath will see their tax liability increase, as certain deductions are disallowed under AMT.

As scary as the AMT itself is, the form is only two pages with 54 “questions.”

Simple, right?

Who Has to File Form 6251?

Technically, everyone. Sorry to be the bearer of bad news.

Everyone is required to fill out Form 6251 to determine whether AMT applies or not. Fortunately for those who file their taxes electronically with the help of software, the software should calculate this for you. You may be subjected to AMT but you won’t be subjected to the fun and enjoyment of filling out Form 6251! If you are opting to do it by hand, I recommend using the IRS’s 2010 AMT Assistant [5] because it’ll tell you in 5-10 minutes whether or not you need to fill out Form 6251. In order to use this tool, you’ll have to have a draft of your 2010 tax return completed through Line 44, which is where you enter this information.

I can save you a bit of time though, if you claimed or received any of the following, the IRS will want you to fill out Form 6251:

  • Accelerated Depreciation
  • Stock by exercising an incentive stock option and you did not dispose of the stock in the same year
  • Tax exempt interest from private activity bonds
  • Intangible drilling, circulation, research, experimental or mining costs
  • Amortization of pollution-control facilities or depletion
  • Income (or loss) from tax-shelter farm activities or passive activities
  • Income from long-term contracts not figured using the percentage-of-completion method
  • Interest paid on a home mortgage NOT used to buy, build or substantially improve your home
  • Investment interest expense reported on Form 4952
  • Net operating loss deduction
  • Alternative minimum tax adjustments from an estate, trust, electing large partnership or cooperative
  • Section 1202 exclusion
  • Any general business credit in Part I on Form 3800
  • Empowerment zone and renewal community employment credit
  • Qualified electric vehicle credit
  • Alternative fuel vehicle refueling property credit
  • Credit for prior year minimum tax

If you didn’t, then it comes down to some other factors and for that you’ll have to use the AMT Assistant.

Why AMT Sucks

It sucks because it excludes certain deductions and thus increases the tax liability of anyone subjected to AMT. It was intended to affect only the wealthiest of taxpayers but when it was created, they forgot to index for inflation. As a result, more and more taxpayers get caught up in the AMT and Congress, rather than dealing with it, simply pass adjustments that reduce the number of people affected.

You might be surprised that AMT was originally created to target 155 high-income households, according to Wikipedia, and it’s affecting far greater numbers today.

Hopefully you won’t get caught up by AMT, unfortunately the only way to know is by filling out Form 6251.

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[2] Email: mailto:?subject=http://www.bargaineering.com/articles/form-6251-alternative-minimum-tax-individuals.html

[3] Form 6251: Alternative Minimum Tax (Individuals): http://www.irs.gov/pub/irs-pdf/f6251.pdf

[4] Alternative Minimum Tax: http://en.wikipedia.org/wiki/Alternative_Minimum_Tax

[5] IRS’s 2010 AMT Assistant: http://apps.irs.gov/app/amt2010/index.jsp?ck

Thank you for reading!