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| Answers to All Your Alternative Minimum Tax Questions |
AMT Preferences In General In calculating alternative minimum taxable income (AMTI), in addition to adding back or subtracting AMT adjustment items (Code Sec. 56), under Code Sec. 57, taxpayers must add back certain AMT preference items. The AMT preference items are: Depletion Excess Intangible drilling costs Interest on private activity bonds Accelerated depreciation on property placed in service before 1987 Exclusion of gain on qualified small business stock. Preference items, unlike adjustment items (discussed here), are always add backs in calculating AMTI. The items are added back to income on page 1 of Form 6251. Many, if not most, individual taxpayers will only have AMT preference items that are passed through to them from partnerships, LLCs, or S Corporations.
6251 Depletion If a taxpayer’s Code Sec. 611 deduction for depletion for a year is greater than the adjusted basis of the property being depleted, the difference is added back as a preference on Form 6251, line 9. This rule does not apply to depletion claimed by oil and gas independent producers and royalty owners under Code Sec. 613A(c). Excess intangible drilling costs The amount of the excess of intangible drilling costs paid or accrued for oil, gas, or geothermal wells allowed as a deduction for regular tax purposes over the amount of these costs that would be allowed if the costs had been capitalized and recovered using a straight line basis, is added back as a preference item on Form 6251, line 26. Interest on specified private activity bonds Interest on specified private activity bonds, which is excluded from income for regular tax is added back as a preference item on Form 6251, line 12. The amount added back is reduced by any deduction attributable to the bonds which would have been allowable if the interest were includible in gross income for regular tax. Accelerated depreciation or amortization on property placed in service before January 1, 1987 The amount of accelerated depreciation or amortization on property placed in service before January 1, 1987 in excess that of the amount that would be allowed if straight line depreciation was used is added back as a preference on Form 6251, line 27 (Other Adjustments). This adjustment generally only applies to property that was placed in service after January 1, 2007 but is being depreciated under the pre-1987 rules due to the transitional provisions of the Tax Reform Act of 1986. Exclusion of gain on the sale of qualified small business stock For regular tax purposes, taxpayers under certain circumstances can exclude some or all of the gain on the sale of qualified small business stock (QSBS) from taxable income (Code Sec. 1202). For AMT, 7% of the gain on QSBS that is excluded under Code Sec. 1202 is added back as a preference item on Form 6251, line 13. Currently, after December 31, 2012, the preference amount is scheduled to change to 42 % of the gain on the sale of QSBS with a holding period beginning before 2001 and 28% of the gain on the sale of QSBS with a holding period beginning after 2000. Have a question about the AMT preference rules? Click here to find out how to submit a question to the AMT Advisor. |
How to submit a question to the AMT Advisor *************************** What is the AMT? AMT Adjustments AMT Exemption AMT Forms Minimum Tax Credit *************************** Alternative Minimum Tax Amounts AMT Rates: 26%, up to Alternative Minimum Taxable Income of $175,000 ($87,500 for Married Filing Separately) 28% on AMTI over $175,000 ($87,500 for Married Filing Separately) AMT Exemption Amounts Before Phase-Out: Taxpayers Filing Single or Head of Household : 2007 - $44,350 2008 - $46,200 2009 - $46,700 2010 - $47,450 2011 - $48,450 Married Filing Jointly or Qualifying Widower: 2007 - $66,250 2008 - $69,950 2009 - $70,950 2010 - $72,450 2011 - $74,450 Married Filing Separately: 2007 - $33,125 2008 - $34,975 2009 - $35,475 2010 - $36,225 AMT Exemption Phase-Out Thresholds: The AMT exemption is reduced by 25% of the amount that alternative minimum taxable income exceeds for: Single or Head of Household - $112,500 Married Filing Jointly or Qualifying Widowers - $150,000 Married Filing Separately- $75,000 |
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