Does an AMT Credit of $100,000 Reduce a Bargain Element of $100,000?

Hi everyone. My name is Tan and I am an independent Certified Financial Planner Practitioner at TAN Wealth Management. In today’s educational video, I want to share with you does an AMT credit of $100,000 reduces a bargain element of $100,000. No because we cannot use the AMT credit in the year we have an AMT liability.

For example, Ace is single and he is a California resident.
The Federal’s standard deduction is $12,950.
The California's standard deduction for state income taxes is $5,202.

Scenario 15
Salary of $250,000
AMT credit of $0
Total Federal Tax is $57,171
Total California Tax is $19,434

Scenario 16
Salary of $250,000
Available Credit for Prior Year AMT of $100,000 for Federal
Available Credit for Prior Year AMT of $20,000 for California
Federal Credit Applied: $11,454
Total Federal Tax is $45,716
California Credit Applied: $7,852
Total California Tax is $11,582

Scenario 17
Salary of $250,000
Available Credit for Prior Year AMT of $100,000 for Federal
Available Credit for Prior Year AMT of $20,000 for California
Bargain element of $50,000
Federal AMT liability is $1,906
Federal Credit Applied: $0
Total Federal Tax is $59,076
California AMT liability is $0
California Credit Applied: $4,352
Total California Tax is $15,082

Scenario 18
Salary of $250,000
Available Credit for Prior Year AMT of $100,000 for Federal
Available Credit for Prior Year AMT of $20,000 for California
Bargain element of $100,000
Federal AMT liability is $15,906
Federal Credit Applied: $0
Total Federal Tax is $73,076
California AMT liability is $0
California Credit Applied: $276
Total California Tax is $19,158

AMT credit helps equalize the regular tax liability and the AMT liability.

Please note that this material is for educational use only and it’s subject to change. Tax laws are complex, there are exceptions to the rules, and it’s constantly changing. Be sure to talk to a qualified professional before making an informed decision. Thank you for watching. Until next time. This is Tan, your Trusted Advisor.