Congress waited until the 11th hour last year, passing an AMT patch for just one more year in December 2007. My prediction at the time was that we’ll see one more year of patches and then with a new administration, we’ll probably get a longer range solution for AMT.
Please keep reading for more information on what AMT is, how it affects you and what the Senate is doing this week about fixing the problem for 2008.
AMT is the alternative minimum tax. It’s a different way of calculating tax and doesn’t affect you at all, unless the AMT calculation comes in higher than your regular income tax calculation.
AMT taxable income is different than regular income tax. For example, income from some tax-exempt bonds is taxable under AMT. Real estate passive losses are never deductible against ordinary income.
AMT deductions are different as well. And, probably the biggest bad surprise of all…. the AMT tax rates don’t give you any breaks for long-term capital gains. So, you might think you’re only paying a maximum of 15% on the sale of an asset, only to discover you’re really paying 26% under AMT. Now, that’s a bad tax day!
One of the saving graces, though, is an exemption amount. That keeps most middle income taxpayers from having to pay AMT. The problem is that the exemption amount is expiring this year. It expired last year as well, and the last minute patch fixed it, but only for one year.
Now, it’s set to expire again. LUCKILY the Senate is paying attention. A bill has been introduced to extend the patch for 2008 as well. Hopefully it passes before the end of the year!