Your tax will be the higher of the tax computed the regular way or the Alternative Minimum Tax. Anticipating when the AMT will affect you is difficult, because it is usually the result of a combination of circumstances. In addition to those items listed above, watch out for transactions involving limited partnerships, depreciation and business tax credits only allowed against the regular tax. All of these can strongly impact your bottom line tax and raise a question of possible AMT. Tax Tip: If you were subject to the AMT in the prior year and had a state tax refund in that year, part or all of your state income tax refund from that year may not be includable in the regular tax computation. To the extent you received no tax benefit from the state tax deduction because of the AMT, that portion of the refund is not includable in the subsequent year’s income.

Congress has procrastinated for several years on AMT reform.  Each year, they temporarily increase the exemption amount for inflation, leaving taxpayers in doubt about the future years.  Without these annual patches, the IRS estimates that an additional 14% of the nation’s taxpayers will be affected by the AMT and hit with an unexpected tax increase.  For 2011, the Congressional patch has increased the exemption amounts as shown in the table below.   We will have to wait and see what happens for 2012.

AMT EXEMPTION PHASE OUT

Filing Status

Exemption Amount

Income Where
Exemption Is
Totally Phased Out

Married Filing Jointly

$74,450

$447,880

Married Filing Separate

$37,225

$223,900

Unmarried

$48,450

$306,300


AMT TAX RATES

AMT Taxable Income
0 – 175,000(1)
Over 175,000(1)

Tax Rate
26%
28%

(1) $87,500 for married taxpayers filing separately


Anticipating when the AMT will affect you is difficult, because it is usually the result of a combination of circumstances. In addition to those items listed above, watch for transactions involving incentive stock options, limited partnerships, and tax-free income from private activity bonds, depreciation, and tax credits. All of these can strongly impact your bottom line tax and raise a question of possible AMT.