26 U.S.C. § 56 — Adjustments in computing alternative minimum taxable income

(a) Adjustments applicable to all taxpayers: This subsection lists changes that everyone must make when figuring alternative minimum taxable income (AMTI), instead of using the regular tax rules. (1) Depreciation: (A) For most property placed in service after December 31, 1986, you can't use the regular depreciation deduction under section 167. Instead, you generally use the slower "alternative depreciation system" of section 168(g). But for a certain category of property placed in service after December 31, 1998, a different method, clause (ii) below, applies instead. (ii) For that certain property, you use the 150% declining balance method, switching to the straight-line method in the first year straight-line gives a bigger deduction. This special rule does not apply to section 1250 property (which always uses straight line for AMT purposes) or to any other property that already used straight-line depreciation for the regular tax. (B) This depreciation adjustment does not apply to certain property listed in section 168(f)(1) through (4), or in section 168(e)(3)(C)(iv). (C) There are coordination rules for property affected by the 1986 tax reform's transition rules. Some such property is excluded from this depreciation adjustment, and some is included even though placed in service before 1987, depending on elections made under that 1986 law. (D) For public utility property described in section 168(i)(10), the Treasury Secretary must set "normalization" accounting rules. (2) Mining exploration and development costs: (A) For each mine or natural deposit (except oil, gas, or geothermal wells), costs that would normally be deducted right away under section 616(a) or 617(a), if paid or incurred after December 31, 1986, must instead be capitalized and spread out (amortized) evenly over 10 years, starting the year the costs were paid. (B) If you have a loss on that property, you can deduct the smaller of: what you'd have been allowed under section 165(a) if the costs had stayed capitalized, or the part of the costs you haven't amortized yet. (3) Long-term contracts: For long-term contracts entered into on or after March 1, 1986, you must figure the taxable income using the percentage-of-completion method (as modified by section 460(b)), even if you use a different method for the regular tax. For certain contracts under section 460(e)(1), you can use simplified cost-allocation procedures to figure the percentage completed. This rule doesn't apply to residential construction contracts. (4) Alternative tax net operating loss deduction: Instead of the regular net operating loss deduction under section 172, you use a special "alternative tax" version, defined in subsection (d). (5) Pollution control facilities: For a certified pollution control facility placed in service after December 31, 1986, the deduction under section 169 must be figured using the alternative depreciation system of section 168(g) instead of the regular method. For such a facility placed in service after December 31, 1998, use straight-line depreciation under section 168 instead. (6) Adjusted basis: If paragraph (1) or (5) applies to a piece of property (or if paragraph (2) or subsection (b)(2) applies to certain expenditures), the property's adjusted basis for AMT purposes follows whichever of those special treatments applies. (7) The alcohol fuel credit rule in section 87 does not apply for AMT purposes. (b) Adjustments applicable to individuals: This subsection lists extra changes that apply only to taxpayers who are not corporations. (1) Limitation on deductions: (A) You cannot deduct: any miscellaneous itemized deduction (as defined in section 67(b)), or state, local, and certain other taxes described in section 164(a)(1)-(3) or 164(b)(5)(A)(ii), except that this tax disallowance doesn't apply to taxes you're allowed to deduct in figuring adjusted gross income. (B) For interest deductions, you follow sections 163(d) and (h), with some changes: "personal interest" (which normally isn't deductible) does not include "qualified housing interest," defined in subsection (e); interest on certain tax-exempt private activity bonds is treated as if it were taxable income when applying the investment-interest limits; "investment interest" also does not include qualified housing interest; and the AMT adjustments of this section and sections 57 and 58 apply when figuring net investment income. (C) If you get back (recover) any of the disallowed taxes from (A)(ii), that recovery isn't included in income for AMT purposes. (D) You cannot take the standard deduction, the deduction for personal exemptions, or the deduction for certain estate/trust distributions under section 642(b). (E) The overall limit on itemized deductions in section 68 does not apply (since many of those deductions are already disallowed here). (2) Circulation and research expenditures: (A) Amounts you'd normally deduct right away for circulation costs (section 173) or research and experimental costs (sections 174(a) and 174A(a)), if paid after December 31, 1986, must instead be capitalized and amortized: circulation costs over 3 years, and research costs over 10 years, starting the year paid. (B) If you have a loss on that property, you can deduct the smaller of what you'd have been allowed under section 165(a) if the costs stayed capitalized, or the unamortized portion. (C) This capitalize-and-amortize rule doesn't apply to research costs from an activity you materially participate in, as defined in section 469(h). (3) Incentive stock options: The special tax-free treatment for exercising an incentive stock option under section 421 does not apply for AMT purposes. If you dispose of the stock in the same year you'd otherwise report AMT income on it, a related rule (422(c)(2)) does apply; otherwise it doesn't. Your basis in the stock is figured based on this AMT treatment. (c) This subsection has been repealed. (d) Alternative tax net operating loss deduction defined: This subsection defines the special net operating loss deduction used in subsection (a)(4). (1) It generally means the same net operating loss deduction allowed under section 172, but with a cap. The deduction can't exceed the sum of two pieces: the smaller of (i) the deduction attributable to ordinary net operating losses, or (ii) 90% of AMTI (figured without this deduction or the section 199 deduction), plus, for certain pre-2014 elected losses, the smaller of the amount attributable to those losses or the remaining AMTI after the first piece. In figuring the deduction, the net operating loss itself must be adjusted as described in paragraph (2), and the usual carryover ordering rules of section 172(b)(2) are adjusted to reflect this cap. (2) Adjustments to the loss computation: (A) For a loss arising in a year after 1986, the net operating loss is recalculated with this section's and section 58's adjustments, and reduced by the tax preference items under section 57, but only to the extent those preference items increased the loss in the first place. (B) For a loss arising before 1987, the amount that can carry forward into years after 1986 is limited to what could have carried forward under the rules in place at the time. (e) Qualified housing interest: This subsection defines the term used in subsection (b)(1)(B). (1) It means qualified residence interest (as defined in section 163(h)(3)) paid or accrued on debt used to buy, build, or substantially improve a home that is either the taxpayer's principal residence at the time, or a "qualified dwelling" that counts as a qualified residence. It also covers interest on debt used to refinance such a loan, but only up to the amount of the original debt being refinanced. (2) "Qualified dwelling" means a house, apartment, condominium, or non-transient mobile home, including the land and structures that go with it. (3) There's a special rule for older debt: qualified housing interest also includes qualified residence interest on debt taken out before July 1, 1982, if that debt was secured, at the time it was taken out, by the taxpayer's principal residence or by a qualified dwelling used by the taxpayer or a family member (as defined in section 267(c)(4)).