What Form 6251 Is For
Form 6251 helps you determine whether the alternative minimum tax applies to your 2012 federal tax return. This parallel tax system recalculates income using alternative minimum taxable income rules to ensure that higher-income taxpayers pay a fair share, even when certain deductions, tax breaks, or tax-exempt interest significantly reduce their regular tax liability.
When You’d Use Form 6251
You use Form 6251 for the 2012 tax year when your adjusted gross income, itemized deductions, incentive stock options, capital gains, tax preference items, or state and local taxes could increase your tentative minimum tax. You should also use Form 6251 when filing an amended return with Form 1040X if earlier tax law calculations caused you to overlook your alternative minimum tax liability.
Key Rules for 2012
- Alternative minimum taxable income rules: This system requires adding back certain deductions that reduce regular income taxes, so taxpayers pay the correct minimum tax amount for the 2012 tax year. These rules apply to high-income households that benefit from tax breaks.
- State and local tax limitations: The rules do not permit deductions for state and local taxes, meaning taxpayers must add them back when calculating alternative minimum taxable income under both the AMT and regular tax systems.
- Incentive stock options: The spread between exercise price and fair market value becomes part of AMT income even though regular tax does not include it, and this increases potential AMT liability significantly.
- Depreciation adjustments required: Regular tax depreciation rules differ from AMT depreciation rules, so you must recompute these amounts to determine the correct tentative minimum tax based on 2012 requirements.
- Private activity bond interest taxed: Interest from tax-exempt bonds issued for private activity becomes taxable for AMT purposes, and this amount must be added back when calculating AMTI.
- Capital gains receive special handling: Capital gains still receive preferential rates, but you must complete the AMT capital gain section and apply the appropriate AMT tax rates shown in the 2012 instructions.
- Exemption amounts phase out: The 2012 AMT exemption amounts depend on filing status and decrease as income levels rise, which increases the total tax for many wealthy taxpayers.
- Record-keeping requirements apply: Maintaining separate AMT records for depreciation, investment interest, and other adjustments helps ensure accurate future AMT calculations and prevents errors that may affect later-year returns.
Browse more tax form instructions and filing guides in our Forms Hub.
Step-by-Step (High Level)
Step 1: Start with your taxable income
You begin by entering taxable income from your federal tax return and converting it to alternative minimum taxable income by adding disallowed tax deductions, local taxes, and certain preference items affected by the parallel tax system.
Step 2: Add all adjustments and tax preference items
You review investment interest expense, incentive stock options, intangible drilling costs, qualified small business stock, and experimental costs, then determine how these items differ under alternative minimum tax rules.
Step 3: Calculate your alternative minimum taxable income
You total all adjustments to determine AMTI, which becomes the foundation for both the AMT calculation and the point at which the AMT exemption begins to phase out for higher-income taxpayers.
Step 4: Apply your 2012 AMT exemption amount
You subtract the correct exemption for your filing status, including married filing jointly or separate tax returns, and determine whether your income level reduces available AMT exemptions.
Step 5: Determine your tentative minimum tax
You apply the 26 percent and 28 percent AMT tax rates, or use the capital gains worksheet when investment income applies, and then compare the results to regular tax liability to determine the tentative minimum tax.
Step 6: Compare the tentative minimum tax with the regular tax
You calculate AMT liability by subtracting regular tax liability from tentative minimum tax, and the remaining amount becomes part of your total tax due on your 2012 federal income taxes.
Learn more about federal tax filing through our IRS Form Help Center.
Common Mistakes and How to Avoid Them
- Double-counting adjustments: Taxpayers sometimes enter certain deductions twice, but you can avoid this by following line instructions carefully and ensuring each tax preference item appears only once.
- Incorrect mortgage and tax deductions: Some filers add back all itemized deductions or local taxes incorrectly, but you can avoid miscalculations by confirming which tax deductions actually qualify as certain deductions under AMT rules.
- Missing incentive stock option income: People occasionally overlook the spread between exercise price and fair market value, but you can avoid errors by reviewing all incentive stock option documents before completing the tax form.
- Overlooking private activity bond interest: Some taxpayers forget that tax-exempt bonds can still trigger AMT, but you can avoid problems by checking whether any tax-exempt interest involves private activity bonds.
- Ignoring depreciation differences: Regular tax depreciation does not match AMT depreciation, but you can avoid mistakes by recalculating regular tax depreciation using the proper 2012 AMT rules.
- Failing to track AMT basis differences: AMT adjustments affect future returns, but you can avoid confusion by keeping separate records for investment interest, taxable IRA distributions, and other timing-related items.
Learn more about how to avoid business tax problems in our guide on How to File and Avoid Penalties.
What Happens After You File
Your AMT liability appears on your federal tax return as part of the total tax for the 2012 tax year, and the IRS reviews your calculation when processing federal income taxes. If the minimum tax exceeds regular tax, you must pay AMT, and you may claim the AMT credit or foreign tax credit in a later year if eligible.
FAQs
When do I need to file IRS Form 6251 (2012) for Alternative Minimum Taxable Income?
You file when AMTI exceeds the 2012 exemption amount or when your income sources include tax preference items, incentive stock options, or significant itemized deductions.
How does the alternative minimum tax work for individuals?
The system recalculates income using AMTI rules and compares the tentative minimum tax to the regular tax, ensuring taxpayers pay the required minimum tax.
How does the alternative minimum tax AMT affect capital gains for 2012?
Capital gains still receive preferential rates, but you must compute AMT separately, and the result may increase your total tax if AMTI is high.
How do I determine the amount of my AMT exemption?
Your exemption depends on your filing status, income level, and AMT exemptions; you apply the phaseout rules shown in the 2012 instructions for Form 6251.
How does Form 6251 handle foreign tax credit under AMT rules?
The form allows an AMT foreign tax credit, but limitations differ from regular tax rules, and a separate Form 1116 may be required for full reporting.
What triggers the Alternative Minimum Tax for high-income households?
Triggers include incentive stock options, significant itemized deductions, tax-exempt interest, private activity bonds, capital gains, and other AMT calculation adjustments.
How do experimental costs affect my Form 6251 AMT calculation?
Experimental costs are treated differently under AMT rules, and you may need to adjust them when determining AMTI using 2012 requirements.
