On his 2020 Federal income tax return, Rigved deducted state income taxes of $8,000 for amounts withheld and estimated tax payments made in 2020. When he filed his 2020 state income tax return in April 2021, he discovered that he had overpaid his state income taxes by $1,500. Rather than having the $1,500 refunded to him, he rolled it forward as a 2021 estimated tax payment. Rigved was not subject to AMT in 2020.

In preparing his 2021 Federal income tax return, Rigved is confused about how he should treat the $1,500. He knows that under the tax benefit rule, he should include the $1,500 in gross income in calculating his regular taxable income. However, because he will be subject to the AMT, he is uncertain as to how he should treat the $1,500 in calculating AMT. He thinks that the amount could be treated as a negative adjustment in converting taxable income to AMTI if 2020 had been an AMT year for him. Because it was not, Rigved is unsure of the treatment.

Advise Rigved on the appropriate treatment of the $1,500 in calculating his 2021 Federal income tax liability.