Does anyone understand the alternative minimum tax?

[vludmilla]

I need help to assuage my concerns about buying a house and suddenly being subject to an enormous tax bill because of the AMT. It seems that whenever I search for information, I can't get any good information. I want to understand if I am likely to need to pay it and approximately how much it might be. Perhaps there is a scenario calculator thingy. I read stories about people having to pay an additional $10k a year in taxes after buying a house. This terrifies me because we are trying to buy a house in a very expensive area with insane property taxes (think 15k a year for a normal house). We are not wealthy at all and the only reason that we afford the house is that we have saved like mad for 10 years so we can't really spare the extra tax...not that those who can want to either.
Anyone have any information or links?

[legaleagle]

AMT has to do with your income, if you are above a certain income level, you can no longer take the full deductions for things like property taxes, mortgage interest, etc. Buying a house, per se, would not increase your income taxes.

calculator http://www.irs.gov/businesses/small/article/0,,id=150703,00.html

[jenfromnj]

AMT has to do with your income, if you are above a certain income level, you can no longer take the full deductions for things like property taxes, mortgage interest, etc. Buying a house, per se, would not increase your income taxes.

calculator http://www.irs.gov/businesses/small/article/0,,id=150703,00.html

:yeahthat: I know for us, the typical huge advantage that most people get when they buy a house (deductions for mortgage interest and property taxes) was diminished by our being hit with the AMT. However, the purchase of our home did not in any way trigger the AMT--as the PP said, it is based upon income (but if I'm misunderstanding your question, I apologize!)

[ThreeofUs]

Even middle-income folks around here get hit with it every.single.year. We live in a high-tax city in a high-tax county in a high-tax state.

If your income is in one of the top tax brackets, you should consult a tax expert to run your numbers. Or I guess you could run them yourself, so you'd know, on the current tax forms.

GL! It's nasty.

[jenfromnj]

Even middle-income folks around here get hit with it every.single.year. We live in a high-tax city in a high-tax county in a high-tax state.

If your income is in one of the top tax brackets, you should consult a tax expert to run your numbers. Or I guess you could run them yourself, so you'd know, on the current tax forms.

GL! It's nasty.

ETA: I also agree with this--we certainly don't consider ourselves "wealthy" by any stretch, but we get hit with the AMT, as do many of our friends. It doesn't help that we live in a high COL area with expensive housing prices as a result (it sounds like you're in a similar situation).

Definitely talk to a tax accountant if you're concerned, though-it might be a good idea anyway if you're planning to buy a house this year.

[mommylamb]

The AMT actually has as much (or more) to do with the number of deductions you have as your income. So, if you have a lot of deductions, you are more likely to be hit by it. This is why it ends up hitting larger families (more dependent tax deductions) who live in high state tax states (deductions for state tax), who have other deductions. It was originally designed to stop wealthy people from getting out of taxes by using an extreme number of deductions. I don't think it's a bad concept, but it should have been indexed for inflation. Any accountant should be able to figure it out for you easily.

[vludmilla]

The AMT actually has as much (or more) to do with the number of deductions you have as your income. So, if you have a lot of deductions, you are more likely to be hit by it. This is why it ends up hitting larger families (more dependent tax deductions) who live in high state tax states (deductions for state tax), who have other deductions. It was originally designed to stop wealthy people from getting out of taxes by using an extreme number of deductions. I don't think it's a bad concept, but it should have been indexed for inflation. Any accountant should be able to figure it out for you easily.

Thanks everyone for your replies.

This has been my understanding as well. I am concerned about gaining the tax deduction of enormous property taxes and having (by national standards) a high salary. I don't use an accountant so I am hoping to find a way to roughly estimate the possible impact of buying a house in the current year.

[goldenpig]

If you're doing your taxes yourself, can you just plug in the estimated deduction for your property taxes and see if it throws you into AMT? That happened to me a couple years ago, when I was working on Turbotax I added deductions from my unreimbursed work expenses, and it said we were now subject to AMT and instead of getting a refund, we suddenly had a huge tax bill. Needless to say, I removed the work deduction! Last year I hired someone to do our taxes but we ended up having to pay AMT anyways. Like PP's have said, that's what happens when you live in an area with relatively higher salaries but also high housing costs and cost of living.

[elektra]

I don't understand it at all! I knew it could come into play when I exercised and sold some stock options a few years ago, and then when we bought our house. I went to a professional CPA to do my taxes that year and I am glad I did. I tried with Turbotax first too and it showed that I owed a huge amount. I did still end up owing, but my CPA got it to come out way lower than I had on my own.
We have used him every year since actually.

[mommylamb]

We have a professional accountant do our taxes, but we have some oddities that make it impossible for us to use something like turbotax. But, I'm so glad... doing taxes totally stresses me out and I like to be able to call up my accountant and ask questions like this at any time of the year. Worth every penny.

[sewarsh]

The AMT was put in place decades ago as a way to tax the "wealthy" extra. Unfortunately they've never adjusted the AMT for inflation, therefore, people making somewhere around $150k (can't remember the exact figure) have to pay an AMT. Its totally ridiculous. In a dual income household nowadays, $150k should not be considered rich especially given the cost of homes.

[ThreeofUs]

I don't understand it at all! I knew it could come into play when I exercised and sold some stock options a few years ago, and then when we bought our house. I went to a professional CPA to do my taxes that year and I am glad I did. I tried with Turbotax first too and it showed that I owed a huge amount. I did still end up owing, but my CPA got it to come out way lower than I had on my own.
We have used him every year since actually.


ITA. Between DH and I we have a fair amount of schooling in maths and logical ability. One year we couldn't get the same answer twice with AMT and some other pieces, and we dumped the whole salami in the lap of an accountant. The $400/year is SO worth it to me for our fed, state, and local taxes. I'm sure our accountant saves us at least that much.

[Zansu]

If you use TurboTax, it has a "what if" calculator. Once you're done with taxes, you can see what your taxes would look like if you had a life event: new baby, new house, gained or lost job, etc.

[wellyes]

Unfortunately they've never adjusted the AMT for inflation, therefore, people making somewhere around $150k (can't remember the exact figure) have to pay an AMT. Its totally ridiculous. In a dual income household nowadays, $150k should not be considered rich especially given the cost of homes.Well, to be fair, that is more money than 90%+ of American households make. I think it is a little sad that I've read so much more outrage over the ATM (not talking about here, more NY Times editorial board & similar venues) than about - say - aggressively eradicating poverty in this wealthy nation of ours. Having said that, I do totally agree that the ATM should be indexed for inflation or at least should only apply to income above that threshold.