With the attention surrounding the alternative minimum tax (AMT) year after year, you may be wondering if you’ll be snared by it in 2011. What can cause you to owe the tax?
The answer lies in items that are treated differently when calculating the AMT than they are when figuring your regular tax. Certain itemized deductions fall into this category. For instance, under the regular federal income tax computation, you can claim an itemized deduction for medical and dental expenses in excess of 7.5% of adjusted gross income.
For the AMT, these expenses must exceed 10% of your adjusted gross income, which means your deduction is limited even more.
Another example: Taxes, including real estate taxes, state income taxes, and sales taxes, are not allowed under the AMT calculation.
The same restriction applies to miscellaneous itemized deductions such as investment expenses and employee business expenses.
Your mortgage interest deduction may differ for AMT purposes, too. Why? Interest you pay on home equity loans is generally not deductible unless you use the loan proceeds to buy, build, or improve your primary or second residence.
Don’t itemize? The standard deduction is also not allowed for the AMT calculation. That’s one reason it can sometimes make sense to itemize even when your standard deduction is higher.
In addition to the items mentioned here, the IRS form used to compute your AMT liability includes other adjustments that may affect you. Give us a call for an AMT review. We can help with planning suggestions and strategies you may be able to implement before year-end.David Bradsher, CPA