Are You Subject to the Alternative Minimum Tax (AMT)?Published:
Learn About AMT Rules & Guidelines
The Alternative Minimum Tax (AMT) is basically an income tax system that runs parallel to the regular income tax. For taxpayers with higher incomes, be aware that the AMT may apply to you.
Certain tax benefits (e.g., credits, deductions, and exclusions from income) can significantly reduce your tax liability. Therefore, the Federal government created the AMT in the 1960’s to ensure that individuals and corporations pay at least a minimum amount of tax.
With the AMT, those who receive certain tax benefits are limited by how much they can reduce their tax obligations. The AMT essentially places a ceiling on those benefits – if your tax benefits reduce your total tax liability below the AMT limit, you are required to pay the higher Alternative Minimum Tax amount.
Who Must Pay The AMT?
The AMT mainly affects higher income taxpayers – individuals and businesses that are eligible for tax benefits that dramatically decrease their tax due. It’s important to note that certain tax credits, which can reduce your regular tax liability, do not reduce the AMT liability.
To find out if you’re subject to the AMT, you will need to calculate your tax liability twice – once under the regular income tax rules, and once under the AMT rules. Then you must pay whichever tax is higher.
You can fill out Form 6251 (Alternative Minimum Tax) to determine whether you owe AMT. You can also use the IRS “AMT Assistant” online tool to find out if it’s necessary to prepare Form 6251. If the AMT Assistant directs you to Form 6251, you will need to complete that form to determine if you owe AMT. After you fill out Form 6251, refer to the Form 6251 Instructions (section titled “Who Must File”) to see if you must attach Form 6251 to your income tax return.
If you received or claimed any of the following items during the tax year, you must complete Form 6251:
• Accelerated depreciation
• Stock (by exercising an incentive option, and you didn’t dispose of the stock in the same year)
• Tax exempt interest from private activity bonds
• Intangible drilling, circulation, research, experimental, or mining costs
• Amortization of pollution-control facilities or depletion
• Income (or loss) from tax-shelter farm activities or passive activities
• Income from long-term contracts not figured using the percentage-of-completion method
• Interest paid on a home mortgage that was not used to buy, build, or substantially improve your home
• Investment interest expense (reported on Form 4952)
• Net operating loss deduction
• Alternative minimum tax adjustments from an estate, trust, electing large partnership, or cooperative
• Section 1202 exclusion
• Any general business credit in Part I of Form 3800
• Empowerment zone and renewal community employment credit
• Qualified electric vehicle credit
• Alternative fuel vehicle refueling property credit
• Credit for prior year minimum tax
AMT Exemption Amounts
The AMT replaces the regular personal exemptions and some deductions (such as the standard deduction) with an AMT exemption.
As part of the American Taxpayer Relief Act of 2012, the AMT exemption amounts were permanently adjusted for inflation. (Prior to that, Congress had to “patch” the AMT by increasing the exemption amount, to prevent middle-income taxpayers from being affected by the tax due to inflation.)
For 2014, the AMT exemption amount is $52,800 for singles ($82,100 for married couples filing jointly). For 2015, the exemption amounts are as follows:
• Single – $53,600
• Married Filing Jointly – $83,400
• Married Filing Separately – $41,700
• Trusts and Estates – $23,800
AMT Tax Rates & Brackets
The AMT has 2 tax rates: 26% and 28%.
For 2014, the 26% tax rate is imposed on the first $182,500 of income above the exemption amount ($91,250 for married couples filing separately). The 28% tax rate is imposed on income above those levels.
For 2015, the 26% tax rate is imposed on the first $185,400 of income above the exemption amount ($92,700 for married couples filing separately). The 28% tax rate is imposed on income above those levels.
Note that taxpayers are permitted to use the special capital gains tax rates (in effect for the regular tax) instead, if they are lower than the AMT tax rates that would otherwise apply.
It is important to determine whether you are subject to the Alternative Minimum Tax before you file your return. If you file and pay the lesser amount of taxes due, you could be liable for back taxes and late payment penalties. Consider consulting a tax professional to make sure you are meeting your tax obligations.