The AMT Advisor Answers To All Your Alternative Minimum Tax Questions
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The AMT Exemption

Because the alternative minimum tax (AMT) was never intended to apply to lower and middle income taxpayers who have small amounts of AMT adjustment or preference items, an exemption is provided to taxpayers to prevent this from occurring.

The AMT exemption is an amount that a taxpayer is allowed to deduct from alternative minimum taxable income before calculating the taxpayer’s AMT liability. The exemption amount for a particular taxpayer depends on the taxpayer’s
filing status. To prevent upper-income taxpayers from benefiting from the AMT exemption, the exemption phases out after a taxpayer’s AMTI reaches a certain level, also based on the taxpayer’s filing status.

AMT Exemption Amounts - 2018

For 2018, the AMT exemption amounts for taxpayers not subject to the exemption phase-out are:

Filing Status                    Amount

Single or Head                  $70,300

of Household


Married Filing Jointly         $109,400

or Surviving Spouse


Married Filing Separately    $54,700


A child subject to the kiddie tax rules for regular tax purposes determines his or her AMT exemption under special rules in Code Sec. 59(j)(1). The AMT exemption for a child subject to the kiddie tax is the lesser of the AMT
exemption for a single taxpayer or the total of the child's earned income plus $5,000, indexed for inflation. For 2018, the amount indexed for inflation is $7,600.

Exemption Phase-Out and Phase-Out Thresholds - 2018

The AMT exemption amount is reduced one dollar for every four dollars of AMTI above the threshold amount for the taxpayer’s filing status.

Exemption phase-out thresholds: The phase-out thresholds are:

Filing Status                      AMTI


Single or Head of             $500,000

Household


Married Filing Jointly      $1,000,000

or Surviving Spouse


Married Filing                  $500,000

Separately


EXAMPLE: Tim and Heather, a couple filing jointly, have AMTI of $1,015,000 in 2018. Their AMT exemption is $105,650 which is the full exemption amount of $109,400 less .25 x ($1,015,000 - $1,000,000) or $3,750.

AMTI level at which exemption completely phased out: Because the AMT exemption phase-out is controlled by the amount of the exemption for a filing status and the amount that AMTI exceeds the phase-out threshold for that filing status, there is a common AMTI level where the exemption for each filing status phases out completely for all taxpayers filing under that status. The exemption phases out completely at the following levels in 2018:

Filing Status                      AMTI

Single or Head of            $781,200

Household


Married Filing Jointly      $1,437,600

or Surviving Spouse


Married Filing                  $718,800

Separately


Practical Effect of the Exemption Phase-out

Although taxpayers with AMTI above the phase-out threshold still calculate their AMT liability using the same rate as taxpayers that are not subject to exemption phase-out, the loss of the exemption raises the taxpayer’s effective AMT tax rate. This occurs because for each $1 of income in the phase-out range, the amount of AMTI actually subject to tax increases by $1.25. This results in an effective AMT rate of 35% (instead of 28%) for AMTI in the phase-out range.

Need more help with the AMT Exemption rules?

Submit your question to the AMT Advisor.