Tax Topic

Alternative Minimum Tax (AMT)

More and more people are getting hit with AMT. The AMT was created back in 1969 in an effort to make sure the wealthy, who often had many deductions not available to the usual taxpayer, always paid some tax. The AMT is calculated differently than the income tax and disallows (or limits) some deductions, usually referred to as "tax preference items." There is also an "AMT exemption amount" meant to keep the not-so-wealthy from paying AMT.

The trouble over the last several years is that the AMT exemption amount has not been indexed for inflation, so it has not increased enough over time and is no longer large enough to keep the middle class from paying AMT. As part of the tax legislation signed into law January 1, 2013 the AMT exemption was increased and has been "permanently" fixed, meaning the exemption has been indexed to inflation, but the exemption is still low enough to catch many people in AMT. For 2018, the AMT exemption is: Joint, $109,400; Single, $70,300, but the AMT exemption phases out to zero along an income range of Joint, $1,000,000 to $1,437,600; and Single, $500,000 to $781,200.

You will generally find yourself paying AMT in situations where you have high property, sales, or state income taxes; and/or large long-term capital gains or qualified dividends and/or large Misc. Itemized Deductions. Unfortunately, there's not much we can do about the AMT except write our Congressional representatives.

The good news is that the new tax bill for 2018 increased the AMT exemption amount and the income range for phase-outs. The new rules for 2018 mean that fewer taxpayers will have to pay AMT.

The IRS web site offers a lot of detail about the AMT:

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