What is the Alternative Minimum Tax?

There are actually TWO distinct Federal tax systems in operating, the regular tax (as calculated on the series 1040 forms and applicable to most people) and the alternative minimum tax (AMT). The latter applies generally to those whose deductions or tax-favored income include "tax preferences" which need to be added back in determining the calculation of the AMT, which is done on Form 6251.

The tax law gives special treatment to some kinds of income and allows special deductions and credits for some kinds of expenses. Taxpayers who benefit from the law in these ways may have to pay at least a minimum amount of tax through an additional tax. This additional tax is called the alternative minimum tax (AMT).

You may have to pay the alternative minimum tax if your taxable income for regular tax purposes, combined with certain adjustments and tax preference items, is more than:

$58,000 if your filing status is married filing joint (or qualifying widow(er) with dependent child),

$40,250 if your filing status is single or head of household, or

$29,000 if your filing status is married filing separate.

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, and

Addition of tax-exempt interest on certain private activity bonds.

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