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A lot has been written on the soon-to-expire tax provisions in the 2017 Tax Cuts and Jobs Act. Many of the provisions in the 2017 tax law that affect individuals, such as the lower income tax rates, higher standard deductions, higher child tax credits and bigger lifetime estate and gift tax exemption, are set to expire after 2025, unless Congress acts.
The individual alternative minimum tax (AMT) is a sleeper tax issue. Similar to other provisions affecting individuals in the 2017 Tax Cuts and Jobs Act, the 2017 easings to the AMT are set to lapse after 2025, unless Congress decides to extend them. But unlike those other provisions, you don't see much coverage on the possible upcoming changes to AMT and how that would impact taxpayers.
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AMT is due to the extent it exceeds your regular federal income tax liability. It has two rates: 26% on the first $232,600 of alternative minimum taxable income and then 28%. The income figures are indexed annually for inflation.
Many tax items are treated differently in calculating alternative minimum taxable income when compared with computing regular taxable income, including the following:
- Standard deductions aren't allowed in computing alternative minimum taxable income.
- If you itemized on Schedule A, you must add back your state and local tax deductions.
- Under the rules that were in place for pre-2018 years, you also had to add back personal exemptions, interest on home equity indebtedness not used to buy or improve your home, and most miscellaneous itemized deductions taken on Schedule A. The 2017 Tax Cuts and Jobs Act temporarily nixed many of these write-off through the end of 2025.
- For AMT purposes, incentive stock options are taxed when exercised.
- Interest received from private-activity municipal bonds is subject to the AMT.
- AMT depreciation is slower, with write-offs stretched over longer periods.
- Many intangible drilling costs can wind up being added back to alternative minimum taxable income.
Some personal credits are allowed against the AMT, including the child credit, the adoption credit, the American Opportunity credit and the dependent care credit.
The 2017 Tax Cuts and Jobs Act kept the individual AMT on the books. But it defanged this oft-lamented tax, albeit only until the end of 2025.
The 2017 law raised the AMT exemption amounts that are deducted when calculating the amount of AMT that you owe. In 2017, the AMT exemption amounts were $84,500 for joint filers, $54,300 for single filers and household heads, and $54,700 for married couples filing separately. For 2024 returns, these figures are $133,300, $85,700 and $66,650. The amounts are adjusted each year for inflation.
It also greatly increased the phaseout zones for the AMT exemptions. On 2017 Form 1040 returns, the exemption phaseout zones started at $160,900 for joint filers, and $120,700 for single filers and people filing as head of household. Compare these numbers with the $1,218,700 and $609,350 figures for 2024 returns. Again, these figures are adjusted each year for inflation.
As a result of the 2017 Tax Cuts and Jobs Act, far fewer taxpayers now pay the AMT. 207,674 filers owed AMT with their 2022 Form 1040, totaling approximately $3.8 billion. Compare this with 5.07 million individual returns reporting $36.4 billion in AMT on 2017 tax returns. That’s a huge decrease in AMT filers. Sometime in 2018 or 2019, the IRS retired its AMT Assistant online tool because of the dwindling number of users.
Unless Congress acts, the AMT rules will revert to those in place in 2017. President-elect Donald Trump often says he wants to see the changes in the 2017 tax law extended, although he hasn’t spoken directly about the AMT. You can expect Republican lawmakers to fight for an extension of the AMT easings, but it’s too soon to tell whether they will be successful. Congressional Republicans and Trump want to enact lots of tax breaks, and not all will make it into any final legislation.
This first appeared in The Kiplinger Tax Letter. It helps you navigate the complex world of tax by keeping you up-to-date on new and pending changes in tax laws, providing tips to lower your business and personal taxes, and forecasting what the White House and Congress might do with taxes. Get a free issue of The Kiplinger Tax Letter or subscribe.
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