Part of the ongoing Alternative Minimum Tax (AMT) mess over the last several years involved the allowance of certain nonrefundable individual tax credits such as the adoption credit, the child and dependent care credit, the lifetime learning credit and other similar credits to be allowed to reduce AMT. In some years it was allowed whereas in other years it was not allowed or was only allowed on a retroactive basis.
In some years if a taxpayer had regular tax before these credits of $10,000 and AMT of $7,000, they could offset $10,000 of tax and potentially have zero tax liability. In other years, they could only offset $3,000 of regular tax and still be subject to the AMT of $7,000.
The new tax law passed at the beginning of the year now makes the more beneficial treatment permanent (at least as permanent as Congress will allow). This rules has been made effective as of January 1, 2012.
Therefore, along with the increase in the AMT exemption to reflect inflation, taxpayers can now offset AMT with nonrefundable personal credits that might not have been allowed under the old law.
On another subject that appears to be raising its head is that possible limitation of 2013 direct payments. Although Congress passed a one-year extension of the 2008 farm bill; with the upcoming fight over the debt ceiling and sequester issues, there is a distinct possibility that these direct payments will be reduced or eliminated. The possible savings in the current and future years may be too tempting for Congress to pass up. We will keep you posted.
Paul Neiffer, CPA