Over the last several years, Congress has elected to solve the increasing number of unintended Alternative Minimum Tax victims by providing temporary one year fixes. The American Recovery and Reinvestment Act of 2009 (“the ACT”) continues this tradition.
The Alternative Minimum Tax (“AMT”) parallels the regular income tax and must be paid to the extent it exceeds one’s regular income tax. Alternative Minimum Taxable Income (AMTI”) is regular taxable income with certain adjustments and increased by tax preferences. Like regular income taxable income, there is an exemption from the AMT.
The AMT exemption for years prior to 2001 was $45,000 for married filing joint filers (including surviving spouses), $33,750 for unmarried individuals, and $22,500 for married filing separately filers. The exemption is phased out by 25% of the excess of AMTI over $150,000 for joint filers, $112,500 for unmarried individuals, and $75,000 for married filing separately filers.
Unlike the regular income tax, neither the AMT exemption, nor the phaseout amounts are increased by inflation. Normally this would cause an unintended annual increase in the number of taxpayers subject to the AMT. Congress has periodically increased the exemption but not the phaseout amounts. For example the AMT exclusions for 2008 are $69,959 for joint filers, $$46,200 for unmarried filers and $34,975 for married filing separately. Without further legislative action, the exemption would return to pre 2001 amounts.
The Act increases the AMT exemptions for 2009 to $70,950 for married filing joint and surviving spouse filers, $46,700 for unmarried filers and $35,475 for married filing separately filers. The phaseout amounts remain unchanged. The AMT exemption for corporations ($40,000) and trusts or estates ($22,5000) also remain unchanged. It is important to note that the increased AMT exemptions are for 2009 only. Without further legislation, the exemptions will return to pre 2001 amounts in 2010 and thereafter.
The ACT also extends for one year the ability to use nonrefundable credits against the AMT. For years prior to 2009, an individual was allowed to offset their AMT by non refundable personal income tax credits, including the dependent care credit, education credits, credit for the elderly and disabled, child and adoption credits, credit for home mortgage interest, retirement savings credit, energy credits, and the D.C. first time homebuyer credit. Before the ACT most non refundable credits would not have been available to reduce the AMT. The ACT extends the prior law to 2009 thus allowing most non refundable personal credits to be used for AMT purposes.
Finally, the Act removes the tax exempt interest on private activity bonds as a tax preference for bonds issued in 2009 and 2010.
The AMT is claiming more victims every year and not necessarily those for whom the tax was intended. It is extremely difficult to calculate especially considering the subsequent year’s credit for AMT paid in a previous year. Proper calculation requires more tax expertise than the average non professional taxpayer can ever possess. While one should always consider using a professional tax preparer in all but the simplest situations, it is almost a necessity to seek professional advice where the AMT is concerned.
The Alternative Minimum Tax (“AMT”) parallels the regular income tax and must be paid to the extent it exceeds one’s regular income tax. Alternative Minimum Taxable Income (AMTI”) is regular taxable income with certain adjustments and increased by tax preferences. Like regular income taxable income, there is an exemption from the AMT.
The AMT exemption for years prior to 2001 was $45,000 for married filing joint filers (including surviving spouses), $33,750 for unmarried individuals, and $22,500 for married filing separately filers. The exemption is phased out by 25% of the excess of AMTI over $150,000 for joint filers, $112,500 for unmarried individuals, and $75,000 for married filing separately filers.
Unlike the regular income tax, neither the AMT exemption, nor the phaseout amounts are increased by inflation. Normally this would cause an unintended annual increase in the number of taxpayers subject to the AMT. Congress has periodically increased the exemption but not the phaseout amounts. For example the AMT exclusions for 2008 are $69,959 for joint filers, $$46,200 for unmarried filers and $34,975 for married filing separately. Without further legislative action, the exemption would return to pre 2001 amounts.
The Act increases the AMT exemptions for 2009 to $70,950 for married filing joint and surviving spouse filers, $46,700 for unmarried filers and $35,475 for married filing separately filers. The phaseout amounts remain unchanged. The AMT exemption for corporations ($40,000) and trusts or estates ($22,5000) also remain unchanged. It is important to note that the increased AMT exemptions are for 2009 only. Without further legislation, the exemptions will return to pre 2001 amounts in 2010 and thereafter.
The ACT also extends for one year the ability to use nonrefundable credits against the AMT. For years prior to 2009, an individual was allowed to offset their AMT by non refundable personal income tax credits, including the dependent care credit, education credits, credit for the elderly and disabled, child and adoption credits, credit for home mortgage interest, retirement savings credit, energy credits, and the D.C. first time homebuyer credit. Before the ACT most non refundable credits would not have been available to reduce the AMT. The ACT extends the prior law to 2009 thus allowing most non refundable personal credits to be used for AMT purposes.
Finally, the Act removes the tax exempt interest on private activity bonds as a tax preference for bonds issued in 2009 and 2010.
The AMT is claiming more victims every year and not necessarily those for whom the tax was intended. It is extremely difficult to calculate especially considering the subsequent year’s credit for AMT paid in a previous year. Proper calculation requires more tax expertise than the average non professional taxpayer can ever possess. While one should always consider using a professional tax preparer in all but the simplest situations, it is almost a necessity to seek professional advice where the AMT is concerned.
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