Years after the dot-com meltdown, thousands of tech workers are still recovering from an alternative minimum tax trap they triggered when...

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SAN JOSE, Calif. — Years after the dot-com meltdown, thousands of tech workers are still recovering from an alternative minimum tax trap they triggered when they misplayed incentive stock options.

Many were left owing devastating tax bills even though their stock had collapsed, forcing them to drain their savings, sell homes and consider filing for bankruptcy protection.

Now a temporary tax credit could enable them to begin recouping tax payments they’ve been unable to reclaim because of a quirk in the AMT rules. In some cases, the credits will create five-digit refunds, tax pros say.

“These are folks who otherwise were never getting it back or getting so little of it back that it looked like it was never going to come back to them in its entirety,” said Karen Brosi, an enrolled agent and certified financial planner in Palo Alto, Calif. “This is a huge boon for them.”

They’ll have to be patient — and fit within the rules, however. The tax credit typically will be spread out in 20 percent chunks over five years. It applies only to certain AMT credits triggered in 2003 or earlier. The tax break begins to phase out when adjusted gross income hits $156,400 for singles and $234,600 for married couples. And it expires after 2012.

“You have to get in and understand how it works so you don’t get left out,” said Claudia Hill, owner of Tax Mam Tax Services Group in Cupertino, Calif. “It’s a limited-time offer, unfortunately.”

The tax trauma was set in motion during the tech boom. Adopting a common strategy, many workers exercised incentive stock options and held onto the stock to qualify for a long-term capital gains break that would have slashed their ultimate tax bills.

But holding the stock basically forced them to prepay alternative minimum tax based on the paper gains on the day they exercised their options and bought the stock. When stock prices plummeted, many workers were left owning stock that frequently couldn’t even cover their tax bills.

AMT rules allow taxpayers to recoup some of those tax bills whenever their regular tax exceeds their AMT bill.

Certified public accountant Sharon Kreider, of Sunnyvale, Calif., said the tax change will enable one client to finally unlock a $65,000 AMT credit. Previously, her client wasn’t likely to recoup her money for 10 to 15 years because her regular tax bill “just kept bumping up against the AMT.”