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You have money questions. Bankrate has answers. Our experts have been helping you master your money for over four decades. Bankrate follows a strict editorial policy, so you can trust that our content is honest and accurate. The content created by our editorial staff is objective, factual, and not influenced by our advertisers. The United States currently has an alternative minimum tax for taxpayers who earn above certain thresholds.
The AMT recalculates income tax after adding certain tax preference items back into adjusted gross income. AMT uses a separate set of rules to calculate taxable income after allowed deductions.
Preferential deductions are added back into the taxpayer's income to calculate his or her alternative minimum taxable income AMTI , and then the AMT exemption is subtracted to determine the final taxable figure. This yields the tentative minimum tax TMT. If the TMT is higher than the taxpayer's regular tax liability for the year, they pay the regular tax and the amount by which the TMT exceeds the regular tax.
In other words, the taxpayer pays the full TMT. Taxpayers have to complete Form to see whether they might owe AMT. First, they get to subtract the exemption amount. AMT is designed to prevent taxpayers from escaping their fair share of tax liability through tax breaks. However, the structure was not indexed to inflation or tax cuts. This can cause bracket creep, a condition in which upper-middle-income taxpayers are subject to this tax instead of just the wealthy taxpayers for whom AMT was invented.
In , however, Congress passed a law indexing the AMT exemption amount to inflation. To determine if they owe AMT, individuals can use tax software that automatically does the calculation, or they can fill out IRS Form This form takes medical expenses, home mortgage interest, and several other miscellaneous deductions into account to help tax filers determine if their deductions are beyond an overall limit set by the IRS.
The form also requests information on certain types of income such as tax refunds, investment interest, and interest from private activity bonds, as well as numbers corresponding with capital gains or losses related to the disposition of property. In addition, some tax credits that reduce regular tax liability don't reduce AMT tax liability.
See the Instructions for Form If you're not liable for AMT this year, but you paid AMT in one or more previous years, you may be eligible to take a special minimum tax credit against your regular tax this year.
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Tax information center : Income : Other income. What is AMT? AMT exemptions and phaseout thresholds for are shown below.
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