If you were unfortunate enough to have been affected by the alternative minimum tax (AMT) in a prior year, then you may have a carryover of unused minimum tax credit. This primarily applies to taxpayers who exercised qualified (incentive) stock options and held the stock to qualify for long-term capital
gains. Up till now, the prior year AMT credit could only be used to the extent
that the regular tax exceeded the AMT for the current year. That, in effect,
made the credit useless for taxpayers who are perpetually taxed by the AMT.

However, a new law provision taking effect in 2007, and continuing through 2012, allows taxpayers to use a portion of the taxpayer’s minimum tax credit carryover that is attributable to the 4th prior year or older (long-term unused minimum tax credit) in the current year, even if taxed by the AMT in the current year. The amount that is refun-dable is limited to the greater of:

(1) the lesser of:
a. $5,000 or
b. the long-term unused minimum tax credit, or

(2) 20% of the long-term unused minimum tax credit.

As if it wasn’t complicated enough, the AMT refundable credit amount is also reduced by 2% for each $2,500, or part of $2,500 ($1,250 for married filing separately), that the taxpayer's AGI exceeds the annual inflation adjusted limit for the taxpayer's filing status. For 2007, those amounts are:

If the AGI exceeds the amount shown by more than $122,500 ($61,250 if married filing separately), the amount allowed for the refundable AMT credit is reduced to zero.