Alternative Minimum Tax
The AMT is designed to catch people who avoid paying taxes due to certain tax breaks.
What is the AMT?
In 1969, Congress created the AMT to ensure wealthy Americans did not avoid paying their federal income tax by taking large deductions.
The Tax Increase Prevention Act 2007 (TIPRA 2007) provided a 1-year patch, which raised AMT exemptions.
Who does AMT affect?
You're subject to the AMT if the AMT exceeds your regular tax figured from tax tables and rate schedules. In other words, you pay whichever amount is more, your regular tax or the AMT.
Several factors influence whether you're affected by the AMT tax, including these common scenarios:
You itemized deductions and claimed large deductions for taxes and/or miscellaneous deductions
subject to the 2% adjusted gross income limit.
You took out a home mortgage or equity line of credit and used the money to do something other
than buy, build or improve your home.
You exercised incentive stock options and did not dispose of the stock.
You claimed a large number of personal and dependent exemptions on your return.
2023 - 2024 exemption amounts are:
Single taxpayers: $53,600
Married taxpayers filing jointly: $83,400
Married filing separately: $41,700
Head of Household: $53,600
Phase-out rules for the AMT. The phase-out range is based upon alternative minimum taxable income (AMTI). The phase-out ranges are updated annually.
The only itemized deductions allowed under the AMT are mortgage interest used to buy, build or improve your home, charitable contributions, casualty losses, medical expenses in excess of 10% of adjusted gross income (AGI), and miscellaneous itemized deductions not subject to the 2% of AGI floor.
Personal exemptions and itemized deductions for state and local taxes which reduce regular taxable income, aren't deductible under the AMT.
The only itemized deductions allowed under the AMT are mortgage interest used to buy, build or improve your home, charitable contributions, casualty losses, medical expenses in excess of 10% of AGI, and miscellaneous itemized deductions not subject to the 2% of AGI floor.
Therefore taxpayers in certain income ranges, who itemize and have larger families may be hit hardest by the AMT. Married taxpayers across a wide income range will be affected, whether they itemize or not.
Every year taxpayers need to consider whether they will have to pay the Alternative Minimum Tax (AMT). The IRS Online AMT Assistant is intended to provide a simple test for taxpayers who fill out their tax returns without using software.
The AMT Assistant is easy to use. You just answer a few simple questions about entries on your draft 1040 and the system does the rest. You will see the results immediately on your computer screen. Your entries are anonymous, and all entries are erased when you exit or start over.
To locate the assistant perform a internet search IRS AMT Assistant
The Assistant can be used by individuals, tax practitioners and community or public service
organizations.
States that have many taxpayers with large incomes and pay their state's high state and local taxes are more affected. Although these taxes are deductible for regular income tax purposes, they aren't for AMT purposes, increasing the likelihood of paying AMT.
Taxpayers in states with low tax rates or that don't have a state income tax are less affected and likely to pay AMT.
