Alternative Minimum Tax
The tax laws give preferential treatment to certain kinds of income and allow special deductions and credits for certain kinds of expenses. The alternative minimum tax attempts to ensure that anyone who benefits from these tax advantages will pay at least a minimum amount of tax.
The alternative minimum tax is a separate tax computation that, in effect, eliminates many deductions and credits, thus creating a tax liability for an individual who would otherwise pay little or no tax. The tentative minimum tax rates on ordinary income are 26% and 28%. For capital gains, the maximum capital gains rates for the regular tax are used.
You may have to pay the alternative minimum tax if your taxable income for regular tax purposes, plus any of the adjustments and preference items that apply to you, is more than an exemption amount. The exemption amounts are per the Jobs and Growth Tax Relief Reconciliation Act of 2003:
- $58,000 if you are married filing jointly or are a qualifying widow or widower,
- $40,250 if you are single or head of household,
- $29,000 if you are married filing separately. For a child under age 14, special rules apply.
Adjustments and Tax Preference Items
The more common adjustments and tax preference items include:
- Addition of personal exemptions
- Addition of the standard deduction (if claimed)
- Addition of itemized deductions claimed for state and local taxes, certain interest, most miscellaneous deductions, and part of medical expenses
- Subtraction of any refund of state and local taxes included in gross income
- Changes to accelerated depreciation of certain property
- Difference between gain or loss on the sale of property reported for regular tax purposes and AMT purposes
- Addition of certain income from incentive stock options
- Change in certain passive activity loss deductions
- Addition of certain depletion that is more than the adjusted basis of the property
- Addition of part of the deduction for certain intangible drilling costs
- Addition of tax-exempt interest on certain private activity bonds
If you are not liable for alternative minimum tax this year, but you paid alternative minimum tax in one or more previous years, you may be eligible to take a special minimum tax credit against your regular tax this year.
For more information about the alternative minimum tax, see the instructions for Form 1040, line 51, and Form 6251, Alternative Minimum Tax– Individuals.