General Instructions

Purpose of Form

Use Form 6251 to figure the amount, if any, of your alternative minimum tax (AMT) and to figure any credit limitations. The tax laws give special treatment to some types of income, allow special deductions for some types of expenses, and allow credits to certain taxpayers. These laws enable some taxpayers with substantial economic income to significantly reduce their regular tax. The AMT ensures that these taxpayers pay at least a minimum amount of tax.

Who Must File

Attach Form 6251 to your return if:

• Line 31 is greater than line 34,
• You claim any general business credit, the qualified electric vehicle credit, the nonconventional source fuel credit, or the credit for prior year minimum tax, or
• The total of lines 8 through 27 is negative and line 31 would exceed line 34 if you did not take lines 8 through 27 into account.

Recordkeeping

For the AMT, certain items of income, deductions, etc., receive different tax treatment than for the regular tax. Therefore, you need to refigure items for the AMT that you figured for the regular tax. In some cases, you may wish to do this by completing the applicable tax form a second time. If you do complete another form, do not attach it to your tax return (except for Form 1116, Foreign Tax Credit - see the instructions for line 32 on page 7), but keep it for your records.

For the regular tax, some deductions and credits may result in carrybacks or carryforwards to other tax years. Examples are investment interest expense, a net operating loss, a capital loss, a passive activity loss, and the foreign tax credit. Because you may have to refigure these items for the AMT, the carryback or carryforward amount may be different for the AMT than for the regular tax. Your at-risk limits and basis amounts also may differ for the AMT. Therefore, you must keep records of these different amounts.

Partners and Shareholders

If you are a partner in a partnership or a shareholder in an S corporation, see Schedule K-1 and its instructions to figure your adjustments or preferences from the partnership or S corporation to include on Form 6251.

Nonresident Aliens

If you are a nonresident alien and you disposed of U.S. real property interests at a gain, you must make a special computation. Fill in Form 6251 through line 30. If your net gain from the disposition of U.S. real property interests and the amount on line 28 are both greater than the tentative amount you figured for line 30, replace the amount on line 30 with the smaller of that net gain or the amount on line 28. Also, write RPI on the dotted line next to line 30. Otherwise, do not change line 30.

Note:   If you are filing Form 1040NR, treat any reference in these instructions or on Form 6251 to a line on Form 1040 as a reference to the corresponding line on Form 1040NR.

Credit for Prior Year Minimum Tax

See Form 8801, Credit for Prior Year Minimum Tax - Individuals, Estates, and Trusts, if you paid AMT for 2001 or you had a minimum tax credit carryforward on your 2001 Form 8801. If you pay AMT for 2002, you may be able to take a credit on Form 8801 for 2003.

Optional Write-Off for Certain Expenditures

There is no AMT adjustment for the following items if you elect for the regular tax to deduct them ratably over the period of time shown.

• Circulation expenditures - 3 years (section 173).
• Research and experimental expenditures - 10 years (section 174(a)).
• Mining exploration and development costs - 10 years (sections 616(a) and 617(a)).
• Intangible drilling costs - 60 months (section 263(c)).

See section 59(e) for more details.

Specific Instructions

Your regular tax may be smaller if you claim a standard deduction on Form 1040 instead of itemizing deductions. However, if you owe AMT, the amount of your total tax (regular tax plus AMT) may be smaller if you itemize your deductions. You may not claim the standard deduction on Form 1040 and use itemized deductions to complete Form 6251.

Part I - Alternative Minimum Taxable Income (AMTI)

To avoid duplication, any adjustment or preference for line 5, 18, or 19 or for a tax shelter farm activity on line 26 must not be taken into account in figuring the amount to enter for any other adjustment or preference.

Line 1

If Form 1040, line 41, includes a write-in amount (such as a capital construction fund deduction for commercial fishermen), adjust line 1 by the write-in amount. If your taxable income includes an amount from the alcohol fuel credit under section 87, reduce line 1 by that amount.

Line 3 - Taxes

Do not include generation-skipping transfer taxes on income distributions.

Line 4 - Certain Home Mortgage Interest

Include on this line home mortgage interest from line 10, 11, or 12 of Schedule A (Form 1040) except for interest on a mortgage whose proceeds were used to:

1. Buy, build, or substantially improve (a) your main home or (b) your second home that is a qualified dwelling (as defined on page 2) or
2. Refinance a mortgage that meets the requirements of 1 above, but only to the extent that the refinanced amount did not exceed the balance of that mortgage immediately before the refinancing.

Exception.   If the mortgage was taken out before July 1, 1982, do not include interest on the mortgage if it was secured by property that was your main home or a qualified dwelling used by you or a member of your family at the time the mortgage was taken out. See section 56(e)(3).

A qualified dwelling is any house, apartment, condominium, or mobile home not used on a transient basis.

Line 7 - Refund of Taxes

Include any refund from Form 1040, line 10, that is attributable to state or local income taxes deducted after 1986. Also include any refunds received in 2002 and included in income on Form 1040, line 21, that are attributable to state or local personal property taxes, foreign income taxes, or state, local, or foreign real property taxes deducted after 1986. If you include an amount from line 21, you must write a description and the amount next to the entry space for line 7. For example, if you include a refund of real property taxes, write real property and the amount next to the entry space.

Line 8 - Investment Interest

If you completed Form 4952, Investment Interest Expense Deduction, figure your AMT investment interest expense on another Form 4952 as follows.

Step 1. Follow the Form 4952 instructions for line 1, but also include the following amounts when completing line 1.

• Any interest expense on line 4 of Form 6251 that was paid or accrued on indebtedness attributable to property held for investment within the meaning of section 163(d)(5) (for example, interest on a home equity loan whose proceeds were invested in stocks or bonds).
• Any interest that would have been deductible if interest earned on private activity bonds issued after August 7, 1986, had been includible in gross income.

Step 2. Enter your AMT disallowed investment interest expense from 2001 on line 2. Complete line 3.

Step 3. When completing Part II, refigure the following amounts, taking into account all adjustments and preferences.

• Gross income from property held for investment.
• Net gain from the disposition of property held for investment.
• Investment expenses.

Include any interest income and investment expenses from private activity bonds issued after August 7, 1986.

Step 4. Complete Part III.

Enter on line 8 the difference between line 8 of your AMT Form 4952 and line 8 of your regular tax Form 4952. If your AMT expense is greater, enter the difference as a negative amount.

Note:   If you did not itemize deductions and you had investment interest expense, do not enter an amount on Form 6251, line 8, unless you reported investment interest expense on Schedule E. If you did, follow the steps above for completing Form 4952. Allocate the investment interest expense allowed on line 8 of the AMT Form 4952 in the same way you did for the regular tax. Enter on Form 6251, line 8, the difference between the amount allowed on Schedule E for the regular tax and the amount allowed on Schedule E for the AMT.

Line 9 - Depletion

You must refigure your depletion deduction for the AMT. To do so, use only income and deductions allowed for the AMT when refiguring the limit based on taxable income from the property under section 613(a) and the limit based on taxable income, with certain adjustments, under section 613A(d)(1). Also, your depletion deduction for mines, wells, and other natural deposits under section 611 is limited to the property's adjusted basis at the end of the year, as refigured for the AMT, unless you are an independent producer or royalty owner claiming percentage depletion for oil and gas wells under section 613A(c). Figure this limit separately for each property. When refiguring the property's adjusted basis, take into account any AMT adjustments you made this year or in previous years that affect basis (other than current year depletion).

Enter the difference between the regular tax and AMT deduction. If the AMT deduction is greater, enter the difference as a negative amount.

Line 11 - Interest From Private Activity Bonds

Enter on line 11 interest you earned on specified private activity bonds reduced (but not below zero) by any deduction that would have been allowable if the interest were includible in gross income for the regular tax. Generally, the term specified private activity bond means any private activity bond (as defined in section 141) issued after August 7, 1986. See section 57(a)(5) for exceptions and more details.

Exempt-interest dividends paid by a regulated investment company are treated as interest income on specified private activity bonds to the extent the dividends are attributable to interest on the bonds received by the company, minus an allocable share of the expenses paid or incurred by the company in earning the interest.

If you are filing Form 8814, Parents' Election To Report Child's Interest and Dividends, any tax-exempt interest income from line 1b of that form that is a preference item must be included on this line.

Line 12 - Qualified Small Business Stock

If you claimed the exclusion under section 1202 for gain on qualified small business stock held more than 5 years, multiply the excluded gain (as shown on Schedule D (Form 1040)) by 42% (.42). Enter the result as a positive amount.

Line 13 - Exercise of Incentive Stock Options

For the regular tax, no income is recognized when an incentive stock option (ISO), as defined in section 422(b), is exercised. However, this rule does not apply for the AMT. Instead, you generally must include on line 13 the excess, if any, of:

• The fair market value of the stock acquired through exercise of the option (determined without regard to any lapse restriction) when your rights in the acquired stock first become transferable or when these rights are no longer subject to a substantial risk of forfeiture over
• The amount you paid for the stock, including any amount you paid for the ISO used to acquire the stock.

Note:   Even if your rights in the stock are not transferable and are subject to a substantial risk of forfeiture, you may elect to include in AMT income the excess of the stock's fair market value (determined without regard to any lapse restriction) over the exercise price upon the transfer to you of the stock acquired through exercise of the option. You must make the election by the 30th day after the date of the transfer. See Pub. 525 for more details.

If you acquired stock by exercising an ISO and you disposed of that stock in the same year, the tax treatment under the regular tax and the AMT is the same, and no adjustment is required.

Increase your AMT basis in any stock acquired through the exercise of an ISO by the amount of the adjustment. Keep adequate records for both the AMT and regular tax so that you may figure your adjustment. See the instructions for line 16.

Line 15 - Large Partnerships

If you were a partner in an electing large partnership, enter the amount from Schedule K-1 (Form 1065-B), box 6. Take into account any amount from box 5 on Form 6251, line 18.

Line 16 - Disposition of Property

Use this line to report any AMT adjustment related to the disposition of property resulting from refiguring:

1. Gain or loss from the sale, exchange, or involuntary conversion of property reported on Form 4797, Sales of Business Property;
2. Casualty gain or loss to business or income-producing property reported on Form 4684, Casualties and Thefts;
3. Ordinary income from the disposition of property not already taken into account in 1 or 2 above or on any other line on Form 6251, such as a disqualifying disposition of stock acquired in a prior year by exercising an incentive stock option; and
4. Capital gain or loss (including any carryover that is different for the AMT) reported on Schedule D (Form 1040), Capital Gains and Losses.

The $3,000 capital loss limitation for the regular tax applies separately for the AMT. See the instructions and example below.

First figure any ordinary income adjustment related to 3 above. Then, refigure Form 4684, Form 4797, and Schedule D for the AMT, if applicable, by taking into account any adjustments you made this year or in previous years that affect your basis or otherwise result in a different amount for the AMT. If you have a capital loss after refiguring Schedule D for the AMT, apply the $3,000 capital loss limitation separately to the AMT loss. For each of the four items listed above, figure the difference between the amount included in taxable income for the regular tax and the amount included in income for the AMT. Treat the difference as a negative amount if (a) both the AMT and regular tax amounts are zero or more and the AMT amount is less than the regular tax amount or (b) the AMT amount is a loss, and the regular tax amount is a smaller loss or zero or more.

Enter on line 16 the combined adjustments for the 4 items above.

Example.   On March 13, 2001, Victor Ash, whose filing status is single, paid $20,000 to exercise an incentive stock option (which was granted to him on January 2, 2000) to buy 200 shares of stock worth $200,000. The $180,000 difference between his cost and the value of the stock at the time he exercised the option is not taxable for the regular tax. His regular tax basis in the stock at the end of 2001 is $20,000. For the AMT, however, Ash must include the $180,000 as an adjustment on his 2001 Form 6251. His AMT basis in the stock at the end of 2001 is $200,000.

On January 20, 2002, Ash sold 100 of the shares for $75,000. Because Ash did not hold these shares more than 1 year, that sale is a disqualifying disposition. For the regular tax, Ash has ordinary income of $65,000 (proceeds minus his $10,000 basis in the 100 shares). Ash has no capital gain or loss for the regular tax resulting from the sale. For the AMT, Ash has no ordinary income, but has a short-term capital loss of $25,000 (proceeds minus his $100,000 AMT basis in the 100 shares).

On April 20, 2002, Ash sold the other 100 shares for $60,000. Because he held the shares for more than 1 year, the sale is not a disqualifying disposition. For the regular tax, Ash has a long-term capital gain of $50,000 (proceeds minus his regular tax basis of $10,000). For the AMT, Ash has a long-term capital loss of $40,000 (proceeds minus his AMT basis of $100,000).

Ash has no other sales of stock or other capital assets for 2002. Ash enters a total negative adjustment of $118,000 on line 16 of his 2002 Form 6251, figured as follows:

• Ash figures a negative adjustment of $65,000 for the difference between the $65,000 of regular tax ordinary income and the $0 of AMT ordinary income for the first sale.
• For the regular tax, Ash has $50,000 capital gain net income reported on Schedule D for the second sale. For the AMT, Ash has a $25,000 short-term capital loss from the first sale, and a $40,000 long-term capital loss from the second sale, resulting in a net capital loss of $65,000 for the AMT. However, only $3,000 of the $65,000 net capital loss is allowed for 2002 for the AMT. The difference between the regular tax Schedule D gain of $50,000 and the $3,000 loss allowed for the AMT results in a $53,000 negative adjustment to include on line 16.

Ash has an AMT capital loss carryover from 2002 to 2003 of $62,000, of which $22,000 is short-term and $40,000 is long-term. If he has no other Schedule D transactions for 2003, his adjustment reported on line 16 of his 2003 Form 6251 would be limited to ($3,000), the amount of his capital loss limitation for 2003.

Line 17 - Post-1986 Depreciation

This section describes when depreciation must be refigured for the AMT and how to figure the amount to enter on line 17.

Do not use line 17 for depreciation related to the following.

• Employee business expenses claimed on line 20 of Schedule A (Form 1040). Take this adjustment into account on line 5.
• Passive activities. Take this adjustment into account on line 18.
• An activity for which you are not at risk or income or loss from a partnership or an S corporation if the basis limitations apply. Take this adjustment into account on line 19.
• A tax shelter farm activity. Take this adjustment into account on line 26.

What Depreciation Must Be Refigured for the AMT?

Generally, you must refigure depreciation for the AMT, including depreciation allocable to inventory costs, for:

• Property placed in service after 1998 that is depreciated for the regular tax using the 200% declining balance method (generally 3-, 5-, 7-, and 10-year property under the modified accelerated cost recovery system (MACRS), except for qualified property eligible for the special depreciation allowance (see below));
• Section 1250 property placed in service after 1998 that is not depreciated for the regular tax using the straight line method; and
• Tangible property placed in service after 1986 and before 1999 (if the transitional election was made under section 203(a)(1)(B) of the Tax Reform Act of 1986, this rule applies to property placed in service after July 31, 1986).

What Depreciation Is Not Refigured for the AMT?

Do not refigure depreciation for the AMT for the following.

• Residential rental property placed in service after 1998.
• Nonresidential real property with a class life of 27.5 years or more placed in service after 1998 that is depreciated for the regular tax using the straight line method.
• Other section 1250 property placed in service after 1998 that is depreciated for the regular tax using the straight line method.
• Property (other than section 1250 property) placed in service after 1998 that is depreciated for the regular tax using the 150% declining balance method or the straight line method.
• Property for which you elected to use the alternative depreciation system (ADS) of section 168(g) for the regular tax.
• Property that is qualified property under section 168(k)(2) (property eligible for the special depreciation allowance). The special allowance is deductible for the AMT, and there also is no adjustment required for any depreciation figured on the remaining basis of the qualified property. Property for which an election is in effect under section 168(k)(2)(C)(iii) to not have the special allowance apply is not qualified property. See the Instructions for Form 4562 for the definition of qualified property.
• Any part of the cost of any property for which you made the election under section 179 to treat the cost of the property as a deductible expense. The reduction to the depreciable basis of section 179 property by the amount of the section 179 expense deduction is the same for the regular tax and the AMT.
• Motion picture films, videotapes, or sound recordings.
• Property depreciated under the unit-of-production method or any other method not expressed in a term of years.
• Qualified Indian reservation property.
• Qualified revitalization expenditures for a building for which you elected to claim the commercial revitalization deduction under section 1400I.

How Is Depreciation Refigured for the AMT?

Property placed in service before 1999.   Refigure depreciation for the AMT using ADS, with the same convention used for the regular tax. See the table below for the method and recovery period to use.

Property Placed in Service Before 1999
IF the property is...	THEN use the...
Section 1250 property.	Straight line method over 40 years.
Tangible property (other than section 1250 property) depreciated using straight line for the regular tax.	Straight line method over the property's AMT class life.
Any other tangible property.	150% declining balance method, switching to straight line the first tax year it gives a larger deduction, over the property's AMT class life.

Property placed in service after 1998.   Use the same convention and recovery period used for the regular tax. For property other than section 1250 property, use the 150% declining balance method, switching to straight line the first tax year it gives a larger deduction. For section 1250 property, use the straight line method.

How Is the AMT Class Life Determined?

The class life used for the AMT is not necessarily the same as the recovery period used for the regular tax. The class lives for the AMT are listed in Rev. Proc. 87-56, 1987-2 C.B. 674, and in Pub. 946, How To Depreciate Property. Use 12 years for any tangible personal property not assigned a class life.

See Pub. 946 for optional tables that may be used to figure AMT depreciation. Rev. Proc. 89-15, 1989-1 C.B. 816, has special rules for short years and for property disposed of before the end of the recovery period.

How Is the Adjustment Figured?

Subtract the AMT deduction for depreciation from the regular tax deduction and enter the result. If the AMT deduction is more than the regular tax deduction, enter the difference as a negative amount.

In addition to the AMT adjustment to your deduction for depreciation, you must also adjust the amount of depreciation that was capitalized, if any, to account for the difference between the rules for the regular tax and the AMT. Include on this line the current year adjustment to taxable income, if any, resulting from the difference.

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