An individual with an Alternative Minimum Tax credit carry forward of $1,200 and a tax liability of $2,500 in 2021 will have how much carry forward available for 2022?

An individual with an Alternative Minimum Tax credit carry forward of $1,200 and a tax liability of $2,500 in 2021 will have how much carry forward available for 2022?

• A. $0
• B. $500
• C. $700
• D. $1,200

Answer: (C)

To determine the carry forward available for 2022, it is essential to understand how the Alternative Minimum Tax (AMT) credit functions, especially in relation to tax liability. The AMT credit can be used to offset future tax liabilities generated by regular tax calculations after the AMT has been applied. In this scenario, the individual has an AMT credit carry forward of $1,200. During 2021, the individual's tax liability is $2,500; therefore, they can apply the AMT credit to reduce this liability. The process allows the individual to first utilize the AMT credit against their regular tax liability. Since the tax liability of $2,500 exceeds the AMT credit of $1,200, the individual can fully utilize the credit, bringing their tax liability down to $1,300 after applying the AMT credit. The remaining carry forward for the following year, 2022, would be the initial AMT credit of $1,200 minus the amount of the credit utilized, which is $1,200 utilized (resulting in a reduction of the tax liability to $1,300). After applying the AMT credit, there are no credits left to carry forward. Thus, the carry forward available

To determine the carry forward available for 2022, it is essential to understand how the Alternative Minimum Tax (AMT) credit functions, especially in relation to tax liability. The AMT credit can be used to offset future tax liabilities generated by regular tax calculations after the AMT has been applied.

In this scenario, the individual has an AMT credit carry forward of $1,200. During 2021, the individual's tax liability is $2,500; therefore, they can apply the AMT credit to reduce this liability. The process allows the individual to first utilize the AMT credit against their regular tax liability.

Since the tax liability of $2,500 exceeds the AMT credit of $1,200, the individual can fully utilize the credit, bringing their tax liability down to $1,300 after applying the AMT credit. The remaining carry forward for the following year, 2022, would be the initial AMT credit of $1,200 minus the amount of the credit utilized, which is $1,200 utilized (resulting in a reduction of the tax liability to $1,300).

After applying the AMT credit, there are no credits left to carry forward. Thus, the carry forward available