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What
Has Changed:
While many taxpayers had hoped for repeal of the dreaded individual alternative
minimum tax (AMT), the new law provides substantially less relief. The
AMT system generally stays intact, with one change being a relatively
minor increase in AMT exemption amounts for tax years 2001 through 2004
only. (AMT exemptions depend on your tax filing status and are applied
to "alternative mini- mum taxable income" -a recalculation of
your regular taxable income, taking into account various mandatory adjustments.)
The new law raises the AMT exemptions by just $2,000 ($4,000 for married-joint
filers) so that the exemption will be $49,000 for joint filers, $35,750
for single filers and those filing as heads of households, and $24,500
for married-separate filers.
The
Impact:
The regular tax rate reductions and elimination of the itemized deduction
reduction and personal exemption phaseout will result in more high earners
being subject to AMT. Taxpayers and their advisors should continue to
plan transactions (including the income deferral and expense acceleration
strategies discussed earlier) with an eye toward their potential AMT consequences.
Incentive stock options, used by many companies to reward executives and
other key employees, remain a potential AMT trap since their exercise
generally results in gain that must be included. in alternative minimum
taxable income. Other items that can trigger AMT include:
- An unusually
large deduction for state income taxes
- Tax-exempt
interest from private activity bonds issued after August 7, 1986
- Interest
on a mortgage not used to buy, build, or improve your home
- A higher-than-average
number of dependency exemptions
- A large
itemized deduction for unreimbursed employee business expenses
Strategy
To Consider:
If you find that you do have to pay AMT, you may be entitled to a credit
in future tax years that can offset your regular income-tax liability,
in effect returning some of the AMT you paid. Check with your tax advisor
for details about the credit.
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