State revenue Tax Refunds - Amt Adjustment

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The Amt adjustment for State earnings Tax Refunds, line 8 on Form 6251, is a discount to your Alternative Minimum taxable income. There isn't much a taxpayer can do about this other than to understand just a miniature bit of what is going on.

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Just for fun, let's start with the Irs' explanation for this in the instructions to Form 6251:

"Include any reimbursement from Form 1040 line 10, that is attributable to state or local earnings taxes. Also contain any refunds received in 2009 and included in earnings on Form 1040, line 21, that are attributable to state or local personal asset taxes or general sales taxes, foreign earnings taxes, or state, local, or foreign real asset taxes. Enter the total as a negative amount. If you contain an number from Form 1040, line 21, you must enter a article and the number next to the entry space for line 8. For example, if you contain a reimbursement of real asset taxes, enter "real property" and the number next to the entry space."

What does this mean in "plain English?" The write back is best done with an example:

Assume a integrate paid ,000 in state earnings taxes in 2008 and itemized this deduction (Schedule A), which they were allowed to do. But the state earnings tax return filed showed they had overpaid by 0. This 0 reimbursement was received from the state in April, 2009.

For quarterly Tax purposes, the 0 is reported as earnings in 2009. This is because of the tax principle that if an permissible deduction for some price is taken in one year (e.g., 2008), but that price is refunded in the following year, instead of amending the 2008 return to "correct" the deduction, the permissible tax fix is to reverse the deduction in 2009 by reporting it as income. Note in total it really was only a ,500 expense, which is the deduction of ,000 less the reimbursement of 0.

For Amt purposes, both earnings (the refund) and deductions need to be shown on an apples-to-apples basis. Because there is no deduction of the ,000 state taxes for those in the Amt, any associated reimbursement amount, Tax Refunds, line 8, does not require a recovery of that item in earnings like you see in the quarterly Tax. The 0 is deducted from Alternative Minimum Tax earnings in 2009, effectively netting any impact, earnings or deduction, to zero.

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