What this line means
The portion of your minimum tax credit that is reduced because you excluded canceled debt from income. The minimum tax credit is a carryforward that helps you recover alternative minimum tax (AMT) paid in prior years. Like general business credits, the minimum tax credit is reduced at 33.33 cents for every dollar of remaining excluded debt — not dollar-for-dollar. This is the third attribute in the Section 108(b)(2) reduction order.
Does this apply to you?
- You excluded canceled debt from income and still have remaining excluded debt after reducing NOLs and general business credits
- You paid AMT in a prior year and have a minimum tax credit carryforward on Form 8801
- You have not yet fully used the minimum tax credit against your regular tax liability
- You did not elect to reduce depreciable property basis first on line 10b
Easy to overlook
Most individual filers do not have a minimum tax credit The minimum tax credit only exists if you paid AMT in a prior year due to timing differences (like incentive stock options exercised but not sold). If you never paid AMT or already used the full credit, line 6 is zero and the remaining excluded debt passes to the next attribute. Do not spend time on this line if you have no AMT history. 1 IRS Form 982 Instructions — Line 6
The 33.33 cents rate applies here too, just like line 5 The reduction rate for minimum tax credits matches the rate for general business credits. For every $3 of excluded debt remaining after lines 4 and 5, you lose $1 of minimum tax credit. This preserves more of your credit than a dollar-for-dollar reduction would, but the remaining excluded debt still rolls forward to reduce capital losses and basis. 2 IRS Publication 4681 — Canceled Debts, Foreclosures, Repossessions, and Abandonments
Watch out for this
Confusing the minimum tax credit (Form 8801) with the AMT itself (Form 6251). The minimum tax credit is a refundable-style credit that lets you recoup prior AMT payments when your regular tax exceeds your tentative minimum tax. Reducing this credit means it takes longer to recover past AMT — you are not paying additional AMT, but you are losing a future benefit.
Footnotes
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IRS Form 982 Instructions, Line 6. https://www.irs.gov/instructions/i982 ↩
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IRS Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments, Chapter 1. https://www.irs.gov/pub/irs-pdf/p4681.pdf ↩