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1040 States

State or local tax refunds with no tax benefit due to AMT

IRS publication

When calculations are made and how they are processed

The application determines the amount of the prior year's state or local income tax refunds with no tax benefit derived due to AMT when the following items are in the prior year return.
  • State or local income tax refunds are calculated.
  • Itemized deductions were claimed and state or local income taxes were deducted on Schedule A.
  • AMT is calculated on Form 6251 in the prior year return.
This calculation is made during the proforma process. Any calculated amount is entered in
YYYY st/loc refund with no tax benefit derived due to AMT
. This is in the
Refunds
 screen in the
Income
 folder. A statement prints detailing the calculation, and the amount is carried to the Tax Refund Worksheet (labeled as “Wrk1” in Forms View).

The calculation

The application calculates the following when the conditions referred to earlier are met. The results appear in a Not Required Statement, titled “Tax Refunds with No Tax Benefit Derived Due to AMT” and also calculate in the Wrk11 folder in the Forms view.
  1. The sum of all state or local income tax refunds attributable to the prior year return is calculated using these steps:
    1. The sum of all prior year extensions and payments for a state or local authority made during the current tax year is divided by total payments on the current tax year's return.
    2. The result from step 1a is multiplied by the total prior year refund. The result is the amount of tax allocated to the following year.
    3. The result from step 1b is subtracted from the total refund to determine the refund amount attributable to the prior year. The same formula is used for any city refunds or payments the client might have.
  2. The current tax year AMT liability is divided by the current tax year's Federal marginal tax rate (which you can find on the YYYY Diagnostic Worksheet.) The result is the tentative amount of the refund where no tax benefit is derived due to AMT.
  3. The smaller of the tentative amount (from Step 2) or the sum of all refunds attributable to the current tax year (from Step 1b) is used in the following steps to be re-included in the prior year's return.
  4. The current tax year's itemized deductions are recalculated to include the amount from Step 3. (Specifically, Line 1 of the YYYY Itemized Deductions Worksheet is reduced by this amount.)
  5. The current tax year's taxable income is recalculated based on any changes to total itemized deductions calculated in Step 4.
  6. The current tax year's regular tax is recalculated based on the appropriate method (Tax Tables, Qualified Dividends & Capital Gains Tax Worksheet, or Schedule D Tax Worksheet.) Taxes are also recalculated for Form 8615 and Schedule J.
  7. The current tax year's AMT liability is recalculated.
  8. The current tax year's total tax liability is recalculated (Steps 6 and 7 are summed.)
If the recalculated total tax on Step 8 is greater than the original tax, then a tax benefit was derived from deducting the taxes. If the recalculated tax is not greater than the original tax, then no tax benefit was derived from deducting the taxes. When no benefit is derived, the application will enter the adjustment amount calculated in Step 3 to the
Refunds
 screen in the Income folder.
If only a partial benefit is derived, or if the amount can't be determined, the field will be blank and an FYI diagnostic will appear indicating that you should review the amount.

When there's no calculated amount

In certain circumstances,
YYYY st/loc refund with no tax benefit derived due to AMT
 is left blank in the following year of UltraTax CS. This typically occurs when the taxpayer was subject to AMT in the prior year and their prior year return contained a Schedule J (Income Averaging for Farmers and Fishermen) or Form 1116 (Foreign Tax Credit). A complete and accurate recalculation of the prior year tax is not always possible when a return contains AMT in the prior year and Schedule J or Form 1116. Therefore, you'll need to determine the taxable refund amount, if any.

This article applies to:

  • Product: UltraTax CS
  • Return type: 1040 Individual
  • State: All states, Alabama
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