AMT Tax Questions from TaxLoopholes Blog

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In the transfer from the old Blog format to the new one, we lost our comments and some questions. At TaxLoopholes we don’t want to leave any question unanswered (Although often the answer is “It depends!”) Here are some of the comments we received during the transfer regarding AMT.

Posted by Jim on Nov 14th: Great information! Was there anything Mark could have done to avoid having to pay AMT?

Answer: I believe that the post refers to the blog entry that had two real-life scenarios. One client sold his business for $1 million at the beginning of the year and the other client sold his business for $1 million at the end of the year. Client #1 paid AMT on the gains while Client #2 got long-term capital gains treatment on the gains. Why?

The reason there were two answers is because AMT is alternative method of calculating tax. Client #2 had income throughout the year that was taxed at the higher 35% rate. So, when AMT was calculated, the ordinary income higher rate made up for the lower capital gains rate. Client #1 mainly had the long term capital gains, so he paid the higher AMT rate of 26-28%.

What could he have done? Planned ahead! Please keep watch for the new AMT Home Study Course out in the next week or so.

Posted by Rich on Nov 8th: You mention that high State taxes and high tax brackets trigger AMT. What is the effect of high interest income please?

Answer: Interest income would impact the tax bracket. It’s taxed at ordinary tax rate, so it’s not the trigger that long-term capital gains is, but it could definitely impact over all tax.

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