Alternative Tax Net Operating Loss Deduction
The Alternative Tax Net Operating Loss Deduction refers to a provision in the tax code that allows taxpayers to offset their alternative minimum taxable income (AMTI) with net operating losses (NOLs) incurred in prior years.
This deduction is part of the alternative minimum tax (AMT) system, which was created to ensure that certain taxpayers pay a minimum amount of tax, even if they have significant deductions. Under AMT rules, NOLs can be carried forward to reduce AMTI, but they cannot be carried back to previous years. The deduction is limited to 90% of the AMTI, meaning that even if a taxpayer has significant NOLs, they will still owe AMT on at least 10% of their alternative taxable income.
For example, if a taxpayer has an AMTI of $100,000 and an NOL of $50,000, they can use the NOL to reduce their AMTI to $50,000 for AMT purposes. However, they would still owe AMT on the remaining $50,000 of AMTI.
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