Alternative Minimum Tax Explained

If your income is less than $200,000 there is very little chance you will pay the alternative minimum tax (AMT).

To calculate the AMT, you do your taxes in the normal way to get your adjusted gross income (AGI). To get your alternative minimum taxable income (ATMI), add back the value of the deductions that are applicable to your situation. Two examples of typical deductions not allowed by the AMT are for state and local income taxes and property taxes. Once you have your AMTI, you subtract an exempted amount that depends on your filing status. In 2017, the exempted amount for a single filer is $54,300. For a married couple filing jointly, the exempted amount is $84,500.

The exempted amounts begin phasing out at income levels that depend on your filing status. For a single filer, the exemption begins phasing out at $120,700. For a married couple filing jointly, phase-out begins at $160,900. The phase-out occurs at a rate of 25 percent.

The AMT has only a 26 percent and a 28 percent bracket. For single filers and married couples filing jointly, the 28 percent bracket begins at $187,800.

Here’s an example. You’re a single filer with an AGI of $100,000. add the $5,000 you deducted for state and local taxes and the 3,000 you deducted for property taxes. This establishes your AMTI of $108,000. Your exemption doesn’t phase out until $120,700. You can claim your entire exemption of $54,300. This leaves you with $53,700. Obviously, $53,700 is far less than $187,800. You’re in the 26 percent bracket for the AMT. Twenty-six percent of $53,700 is $13,962. That’s your tax bill under the AMT. You pay the higher of your AGI or your AMT bill.

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