Final answer:
The credit for prior year alternative minimum tax (AMT) liability can be carried forward for use in future tax years. AMT credits created after 2006 can be carried indefinitely until they are utilized. This allows taxpayers who previously paid AMT to apply these credits in years when their regular tax exceeds the AMT.
Step-by-step explanation:
The credit for prior year alternative minimum tax (AMT) liability can indeed be carried forward. This is allowed for credit to be applied in future tax years when regular tax exceeds the AMT. The purpose of the carryforward is to prevent the tax system from punishing taxpayers who have paid AMT in previous years, when in the future, their regular tax liability exceeds their AMT liability.
According to U.S. tax laws, AMT credits that originated from tax years starting after December 31, 2006, are carryforward credits. These can be carried forward indefinitely until utilized. However, it is important for taxpayers to ensure that the credits are applied correctly and to verify their eligibility with the Internal Revenue Service (IRS) regulations.
Understanding the rules around the AMT credit carryforward is essential for long-term tax planning and can result in significant tax savings over time. Taxpayers who often find themselves subject to AMT, especially those with large tax preference items or adjustments, should be particularly aware of this tax provision.