AMT Adjustments

In General

Per Code Sec. 56, in calculating alternative minimum taxable income (AMTI), a
taxpayer must add or subtract amounts from regular taxable income due to
the different treatment of certain tax items for AMT. These additions and
subtractions are called AMT adjustments.

    NOTE: Individual taxpayers in some cases must also increase regular
    taxable income in some cases due to the different treatment of certain
    other tax items for AMT purposes under Code Sec. 57. These
    increases, called AMT preferences, are discussed here.

Some of the adjustment items are very common, while others only affect a
small number of individual taxpayers. The items that are subject to adjustment
for AMT for individual taxpayers include:

The limitation on overall itemized deductions.

Miscellaneous itemized deductions subject to the 2% floor.

Standard deduction and personal exemptions.

Certain state, local and foreign taxes.

Medical expenses.

Certain interest (including home mortgage and investment interest).

Depreciation deduction.

Mining exploration and development costs.

Long-term contract expenses.

Alternative tax net operating losses.

Amortization deductions for pollution control facilities.

Gain or loss on the disposition of property.

Alcohol fuel credits
.
Circulation expenses.

Research and experimental expenses.

An individual taxpayer’s AMT adjustment items are added or subtracted in the
calculation of AMTI on page 1 of Form 6251. These adjustments  are
discussed below.

NOTE: All line references below are to the 2013 Form 6251.

Limitation on Overall Itemized Deductions

The overall limitation on itemized deductions, reinstated in 2013, is an
adjustment for AMT.

Miscellaneous itemized deductions subject to the 2% floor

For AMT, an individual taxpayer cannot deduct miscellaneous itemized
deductions subject to the 2% of AGI floor (as defined in Code Sec. 67(b)).
Therefore, an individual taxpayer must add back these deductions in
calculating AMTI. The miscellaneous itemized deductions subject to the 2% of
AGI floor include (but are not limited to):

    Unreimbursed employee business expenses.

    Tax return preparation fees.

    Expenses paid to collect or produce taxable income or to manage or
    protect property held to earn taxable income.

An individual taxpayer reports the AMT adjustment amount for these items
(the amount from line 27 of Schedule A, Form 1040) on Form 6251, line 5.

State, local, and foreign taxes

No deduction is allowed in calculating AMTI for the taxes listed in Code Secs.
164(a) and 164(b)(5)(A). Therefore, an individual taxpayer must add back
deductions for these taxes in calculating AMTI. These taxes include:

    State, local, and foreign income, war profits, and excise taxes.

    State, local, and foreign real property taxes.

    State and local personal property taxes.
           
    State, local, and foreign taxes paid or accrued in carrying on a trade or
    business or an activity for the production of income.

    State and local sales taxes deducted in lieu of income taxes.

An individual taxpayer reports the AMT adjustment amount for these items
(line 9 of Schedule A, Form 1040) on Form 6251, line 3.

Standard deduction and personal exemptions

The basic and additional standard deduction and the deduction for personal
exemptions are not allowed for AMT. Because the calculation of AMTI starts
with adjusted gross income (AGI) for individual taxpayers taking the standard
deduction (AGI less itemized deductions for taxpayers who itemize), no entry
is necessary on Form 6251 to take into account the adjustments for the
standard deduction and the personal exemption.

    NOTE: The disaster loss deduction under Code Sec. 63(c)(1)(D) and
    the motor vehicle sales tax deduction under Code Sec. 63(c)(1)(E),
    which are part of the overall standard deduction, are allowed for AMT.

Medical expenses

Medical and dental expenses are deductible in calculating AMTI to the extent
that they exceed 10% of AGI. For years before 2013, they are deductible for
regular tax purposes to the extent that they exceed 7.5% of AGI. For 2012,
the difference between the deductions for AMT and regular tax (which for
practical purposes is the lesser of the amount on line 9 of Schedule A, Form
1040, and 2.5% of the amount on line 38, Form 1040) must be added in
calculating AMTI on Form 6251, line 2.

For 2013 and later years, because the deduction will be the same for regular
tax and AMT, no adjustment will generally be necessary. However, in 2013
through 2016, a transitional rule in Code Section 213(f) allows taxpayers 65
years and older to continue deducting medical and dental expenses in excess
of 7.5% of AGI for regular tax purposes. However, this rule will not apply in
determining the AMT deduction. Therefore, taxpayers affected by Code
Section 213(f) will have an AMT adjustment for medical and dental expenses
in those years.

Interest expenses

Mortgage interest: The rules for deducting mortgage interest are more
restrictive for AMT than for regular tax. If a taxpayer can deduct more
mortgage interest for regular tax than for AMT, the difference is an adjustment
that the taxpayer adds back in calculating AMTI.

For the regular tax, individual taxpayers can deduct interest on a mortgage
loan that the taxpayer used to purchase a qualified residence (i.e., the
taxpayer’s principal residence and one other residence selected by the
taxpayer that the taxpayer uses as a personal residence) or refinance an
existing loan that was used to purchase a qualified residence, to the extent
the refinancing loan does not exceed the original mortgage loan. The
taxpayer may also deduct interest on a home equity loan or line of credit.  For
the AMT, an individual may only deduct interest on a mortgage loan used in
acquiring, constructing, or substantially improving a principal residence or
qualified dwelling.

    NOTE: Because of the “acquiring, constructing, or substantially
    improving” rule, and the lack of an AMT provision for deducting home
    equity interest, interest on a home equity loan or line of credit will not
    be deductible for AMT if a taxpayer uses the proceeds from the loan or
    line of credit for purposes unrelated to the home.
                                                                                                                          
For the regular tax, a qualified residence (in the case of the taxpayer’s
principal residence and an elected second residence) includes a house,
mobile home, condominium, houseboat, house trailer, and stock held by a
tenant-stockholder in a cooperative housing corporation. For AMT, this is also
the case for the taxpayer’s principal residence. However, for AMT purposes,
the second residence can only be a home, apartment, condominium, or a
mobile home not used on a transient basis.

An individual taxpayer adds back the amount of the adjustment for mortgage
interest in calculating AMTI on Form 6251, line 4.


    EXAMPLE: T owns a home and a boat that qualifies as a residence for
    purposes of the regular tax mortgage interest deduction. T has an
    original mortgage loan used to purchase the home, a home equity line
    of credit on the home that he has used solely to pay for several
    vacations, and a loan secured by the boat that he used to purchase the
    boat. For regular tax purposes, T will be able to deduct the interest on
    all three of these loans. For AMT purposes, he will only be able to
    deduct the interest on the original home mortgage loan. T must add
    back the interest on the home equity line of credit and the boat loan in
    calculating his AMTI.

Investment interest: For regular tax purposes, an individual taxpayer can
deduct investment interest to the extent of his or her net investment income. A
taxpayer also can deduct investment interest to the extent of net investment
income for AMT purposes, but the taxpayer must take AMT adjustment and
preference items and the AMT loss disallowances under Code Sec. 58 into
account in determining the amount of investment interest expense that is
deductible in computing AMTI. Investment interest that a taxpayer cannot
deduct in the current year due to the net investment income limitation can be
carried forward and deducted (subject to the limitation) in the next tax year.
The difference between the regular tax deduction for investment interest and
the AMT deduction for investment interest is an AMT adjustment that is
included on Form 6251, Line 8.

Interest on a mortgage loan that is deductible under the AMT rules for home
mortgage interest described above is not investment interest. However, where
the taxpayer uses the proceeds of a mortgage loan to purchase investment
property, the interest on the loan is deductible investment interest for AMT
purposes if it is not deductible under the home mortgage interest rules.

Interest on borrowed funds used to purchase private activity bonds are
investment interest for AMT because the interest from private activity bonds is
included in AMTI. Likewise, the interest on private activity bonds is included in
investment income.

Incentive Stock Options

For regular tax, under Code Section 421, a taxpayer that exercises an
incentive stock option is not required to include the difference between the
option price and the fair market value of the underlying stock at the time of
exercise in income in the year of exercise. For AMT, this difference must be
included in income in the year of exercise. Thus, the amount of the difference
is an AMT adjustment added back in calculating AMTI on Form 6251, line 14.

    NOTE: This adjustment does not apply if the taxpayer sells the stock
    received in the ISO exercise in the same tax year he or she exercises
    the ISO.  

    EXAMPLE: R exercises 100 ISOs in 2012 when the FMV of the stock
    underlying the options is $10 per share. R pays $5 per share when she
    exercises the ISOs. R does not recognize any income for regular tax in
    2012 due to the exercise of the ISOs. In calculating AMTI, R must add
    back $500, the difference between the amount when she exercised the
    ISOs and the FMV of the stock she receives.

For AMT purposes, a taxpayer adds the amount of the adjustment to the
basis of the stock.

    EXAMPLE: The facts are the same as in the preceding example. R has
    a regular tax basis of $500 in the stock she receives when she
    exercises the ISOs, the price she paid when exercising the options. Her
    AMT basis in the stock is $1000, the price she paid when exercising the
    options plus the amount of her AMT adjustment.

The difference in basis caused by the ISO adjustment will usually cause an
AMT adjustment on the disposition of the stock in the year the stock is sold.
The AMT adjustment for the disposition of property is discussed below.

Depreciation

In general, unless a taxpayer elects to use the same method of calculating
depreciation for regular tax and AMT on post-1986 assets, depreciation is
calculated differently for regular tax and for AMT on those assets. In most
cases, the differences in the depreciation rules for the two systems results in
a greater depreciation deduction for a particular asset for regular tax in the
earlier years of the asset’s recovery period and a lower deduction for regular
tax in the later years. The difference between the aggregate amount of
depreciation deductions for regular tax and for AMT is an adjustment that is
added back or subtracted in the calculation of AMTI on Form 6251, line 18.

    NOTE: See the instructions for Form 6251, under the heading “Post-
    1986 Depreciation” for more information on the specific differences in
    the calculation of regular tax and AMT depreciation.

For a taxpayer that owns an interest in a partnership or shares in an S
corporation, the K-1 the taxpayer receives from the partnership or S
corporation frequently includes a passthrough of an AMT depreciation
adjustment amount. On a 2012 partnership K-1, the adjustment is reported on
line 17 (Code A). On a 2012 S corporation K-1, the adjustment is reported on
line 15 (Code A).

Disposition of property

The gain or loss recognized on the disposition of property may be different for
regular tax and AMT because the property the taxpayer disposes of has a
different basis for regular tax and AMT. This can occur for a number of
reasons, including differences in depreciation deductions taken under the two
systems for the property and in the case of stock received through the
exercise of an ISO, the difference in basis caused by the ISO AMT adjustment
discussed above. Because basis may be higher or lower for regular tax than it
is for AMT, this adjustment may be positive or negative. The taxpayer includes
the adjustment in calculating AMTI on Form 6251, line 17.

    NOTE: It is important to remember that the $3,000 limitation on the
    deduction of capital losses that applies to individual taxpayers for
    regular tax also applies for AMT.

Amortization Expenses of Pollution Control Facilities, Circulation
Costs, Long-Term Contract Expenses, Mining Costs, Research
and Experimental Costs

Except for adjustments passed through from partnerships, LLCs, and S
corporations, these are all comparatively rare adjustments for individuals.
More detail on these adjustments can be found in the instructions for Form
6251.

    NOTE: If you own a sole proprietorship business and report any of
    these types of expenses on Schedule C, you should generally consult
    with a qualified tax professional when determining the amount of the
    AMT adjustment.


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What is the AMT?

AMT Preferences

AMT Exemption

AMT Forms

Minimum Tax Credit

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Alternative
Minimum Tax
Amounts

AMT Rates:
26%, up to Alternative
Minimum Taxable
Income of  $179,500
($89,750 for Married
Filing Separately)

28% on AMTI over
$179,500 ($89,750 for
Married Filing
Separately)

AMT Exemption
Amounts Before
Phase-Out:

Taxpayers Filing
Single or Head of
Household :
2009 - $46,700
2010 - $47,450
2011 - $48,450
2012 - $50,600
2013 - $51,900

Married Filing
Jointly or Qualifying
Widower:
2009 - $70,950
2010 - $72,450
2011 - $74,450
2012 - $78,750
2013 - $80,800

Married Filing
Separately:
2009 - $35,475
2010 - $36,225
2011 - $37,225
2012 - $39,375
2013 - $40,400

AMT Exemption
Phase-Out
Thresholds:
The AMT exemption is
reduced by 25% of the
amount that alternative
minimum taxable
income exceeds the
threshold amount for
the taxpayer's filing
status:

Single or Head of
Household
2012 - $112,500
2013 - $115,400

Married Filing
Jointly or Qualifying
Widowers
2012 - $150,000
2013 - $153,900

Married Filing
Separately
2012 - $75,000
2013 - $76,950

AMT Exemption for
Children Under 18  
(Kiddie AMT)

For 2009
The lesser of $46,700
or the child's earned
income plus $6,700

For 2010
The lesser of $47.450
or the child's earned
income plus $6,700

For 2011
The lesser of $48,450
or the child's earned
income plus $6,800

For 2012
The lesser of $50,600
or the child's earned
income plus $6,950

For 2013
The lesser of $51,900
or the child's earned
income plus $7,150

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