How to Reduce AMT
The Alternative Minimum Tax (AMT) is a separate tax system taxpayers dread as potentially ensnaring them in a universe of different rules. Deductions permitted under the AMT are less generous than the regular tax system. To measure the impact of the AMT requires complicated adjustments to a normally prepared tax return. A taxpayer who expects owing AMT can seldom avert the events that trigger it. But some actions may reduce the tax. There's no possibility of reducing AMT causes after year-end.
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Instructions
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1
Defer paying property taxes during a year that you are subject to the AMT. Pay property taxes in January instead of December if you don't expect the AMT to apply next year. Property taxes are not deductible under AMT. The same applies to state income tax, but that is an unlikely item to defer.
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2
Reduce your debt owed on real estate that was not incurred to buy, build or improve your main home. For example, interest paid on home equity loans is not deductible under AMT. Also pay down amounts borrowed against investments. The AMT deduction for investment interest expense is lower than the amount allowed under regular income tax.
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3
Dispose of investments that provide deductions for depletion and intangible drilling costs. Deduction of depletion is limited by income and AMT income is determined differently. Intangible drilling costs are not deductible under the AMT.
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4
Sell municipal bonds that are "specified private activity bonds." The interest on these types of bonds is taxable under the AMT although it's exempt from tax under the regular system.
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5
Delay the sale of a qualified small business. Under the regular income tax, you can eliminate from taxation part of the gain from selling a small business corporation that you owned for more than five years. But these gains are taxed under the AMT.
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6
Defer exercising incentive stock options (ISOs). When you exercise ISOs, your AMT income increases by the difference between the fair market value of the acquired stock and the cost to exercise the purchase option.
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7
Avoid disposing of passive investments that have a lower loss carry forward under the AMT than under regular income tax. The amount of any AMT passive activity loss that was previously not deductible and carried forward is likely to differ from the regular tax amount. The AMT is increased by the difference between passive losses eventually captured under AMT calculations compared to determination under regular tax.
(See References 2 for all steps)
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