What Form 6251 Is For
Form 6251 determines whether the alternative minimum tax applies to your income tax return. It compares taxable income under regular tax rules with income calculated under AMT rules. The form ensures that taxpayers using significant tax deductions or tax benefits still pay a minimum amount of income tax. You complete IRS Form 6251 when your income level, adjustments, or credits exceed exemption amounts or phaseout thresholds for the tax year.
When You’d Use Form 6251
You use Form 6251 when income thresholds or AMT adjustments require reviewing AMT rules. This includes adjustments for Incentive Stock Options, interest on private activity municipal bonds, Excess Intangible Drilling Costs, or Schedule A deductions.
You also use it when Schedule K-1 items, Form 3800 credits, or small business stock adjustments apply. Married joint filers may also need AMT calculations if their taxable income exceeds exemption amounts after inflation adjustments under the Tax Cuts and Jobs Act.
Key Rules or Details for 2018
- AMT exemption amounts: You use higher exemption amounts in 2018 because the Tax Cuts and Jobs Act increases thresholds. These exemptions reduce AMT for many taxpayers while still applying at certain income levels.
- Taxable excess calculations: You calculate taxable excess after subtracting your AMT exemption from alternative minimum taxable income. This amount determines whether AMT applies and how much additional income tax you owe.
- Disallowed deductions: You add back state taxes, certain Schedule A deductions, and private activity bond interest. These adjustments increase AMTI and may trigger AMT liability depending on income thresholds for the tax year.
- Tax rates for AMT: You apply the 26 percent or 28 percent AMT tax rates based on taxable excess. These rates may increase tax liability because fewer deductions are available under AMT rules compared to regular tax rules.
- Capital gains treatment: You calculate capital gains using Schedule D rules while completing the required AMT worksheets. This preserves preferential tax rate treatment even when AMT applies to the overall tax return.
Browse more tax form instructions and filing guides in our Forms Hub.
Step-by-Step (High Level)
Step 1: Calculate alternative minimum taxable income
You start by adjusting taxable income from Form 1040 using AMT rules. You add back state taxes, private activity municipal bond interest, depreciation differences, and adjustments from Schedule K-1 to determine alternative minimum taxable income.
Step 2: Apply the AMT exemption amount
You subtract the AMT exemption amount based on filing status. You compare this amount with exemption phaseout thresholds, which may reduce your AMT exemption once income reaches specific inflation-adjusted limits.
Step 3: Determine the tentative minimum tax
You apply AMT tax rates to the taxable excess after subtracting the exemption. You use special worksheets for capital gains or qualified dividends. You then calculate the tentative minimum tax and compare it with the regular tax from Form 1040.
Step 4: Compare the tentative minimum tax with the regular tax
You determine whether the AMT applies by comparing the tentative minimum tax with your regular income tax. You owe AMT when the tentative minimum tax exceeds the regular tax. You report this difference on Schedule 2 for the tax year.
Step 5: Report AMT and complete supporting forms
You enter applicable AMT amounts on Schedule 2 and complete necessary forms, such as Form 8801 for future-year credits. You keep worksheets from tax preparation software or a financial advisor for documentation and future AMT calculations.
Learn more about federal tax filing through our IRS Form Help Center.
Common Mistakes and How to Avoid Them
- Missing AMT adjustments: Many taxpayers overlook adjustments required under AMT rules. You can avoid errors by reviewing IRS instructions closely and confirming that each adjustment appears once in the appropriate section of Form 6251.
- Incorrect exemption calculations: Some taxpayers miscalculate exemption amounts or phaseout thresholds. You can avoid issues by confirming that the filing status and adjusted gross income match the exemption amounts listed for the 2018 tax year.
- Improper capital gains treatment: Some taxpayers apply incorrect tax rates to capital gains under AMT. You can prevent mistakes by using the AMT Capital Gains Worksheet included with Form 6251 instructions for proper calculations.
- Skipping required supporting forms: Certain AMT items require the attachment of specific forms, such as Form 8834, Form 3800, or Form 8801. You can avoid delays by submitting all the necessary documents and saving worksheets from your tax preparation software.
- Overlooking stock option adjustments: Exercised incentive stock options can create significant AMT liability. You can prevent unexpected tax burdens by checking whether the bargain element increases the alternative minimum taxable income.
Learn more about how to avoid business tax problems in our guide on How to File and Avoid Penalties.
What Happens After You File
After you file IRS Form 6251, the Internal Revenue Service reviews AMT calculations and regular tax rules to confirm your tax liability. Your AMT calculation becomes part of your permanent tax return for that year. If AMT applies, you may claim a minimum tax credit using Form 8801 in later years. Your final income tax return determines whether you receive a tax refund or owe additional tax liability. Late or amended filings use Form 1040X and follow the standard carryback period rules.
FAQs
How does IRS Form 6251 calculate alternative minimum tax under the 2018 Tax Law Changes?
IRS Form 6251 calculates AMT by adjusting taxable income, applying exemption amounts, and comparing the tentative minimum tax with the regular tax. The Tax Cuts and Jobs Act increases income thresholds for 2018.
Do AMT exemption amounts affect taxable income for someone married filing jointly?
Yes, married joint filers receive higher exemption amounts, and exemption phaseouts begin at higher income thresholds. This affects the alternative minimum taxable income and whether AMT applies.
Does AMT apply if a tax return includes capital gains or Schedule D income?
Capital gains continue to receive preferential tax rate treatment. However, AMT worksheets ensure accurate calculations when Schedule D income affects alternative minimum taxable income.
How do incentive stock options increase AMT tax liability on IRS Form 6251?
Exercised incentive stock options increase AMTI when the bargain element is included. This adjustment may create AMT liability even if you do not receive cash from the sale of the stock.
Can I claim the Foreign Tax Credit or other tax credits while completing Form 6251 with the IRS?
Certain tax credits, including the Foreign Tax Credit, may reduce the tentative minimum tax. You complete Form 1116 or Form 3800 when a credit applies to AMT calculations.
Do California forms like Form FTB 3805V or California Schedule S change AMT on a federal income tax return?
These state forms do not change federal AMT calculations. However, Schedule K-1 adjustments may still increase alternative minimum taxable income under federal AMT rules.
How do I recover AMT paid in a prior tax year using Form 8801?
You recover eligible AMT through the minimum tax credit on Form 8801. The credit reduces future income tax when AMT results from timing differences such as depreciation or net operating loss adjustments.
