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I live in California. After having paid AMT for the last few years, this is the first year when my regular taxes are higher than AMT. This seems to mean I have accrued AMT credit over the last few years that I can claim against my regular taxes this year. Note that the AMT from the last few years was due to state tax deductions and not due to things like ISOs.

Now, assume my AMT was $1k over regular taxes last year. Say I got a state tax refund as part of my last year's tax filing. As part of this year's filing, after recomputation of last year's taxes, it turns out all of that state tax is not taxable this year. However, as part of that recomputation for last year, the AMT over regular tax came out to be $500. Does that mean the AMT credit that I can carry forward is $1k or $500?

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Most of the time, AMT does not generate a credit to be carried forward. It does in cases where the AMT was triggered by deferred taxes, such as the special treatment of ISOs (incentive stock options). When you owe AMT due to such items, you should file Form 8801 each year to compute the credit being carried.

In your specific question, it sounds like the state tax refund didn’t change the total tax due for last year; it simply changed how much of it was regular tax and how much was AMT. Thus the refund does not need to be included on your taxes this year.

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  • If the AMT you owed last year were from ISOs, and thus did result in a carry-forward, the instructions for 8801 should explain how to adjust the carry-forward for the tax refund; but I don’t remember the process off the top of my head.
    – prl
    Mar 18, 2019 at 13:53

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