The Republican Tax Plan: Analysis – Increase in the AMT Exemption


Increase in Alternative Minimum Tax Exemption

One of the dumb things that Congress enacted many years ago was the Alternative Minimum Tax (AMT). The intent was to try to make higher-income taxpayers subject to paying some tax and not take advantage of the legal loopholes and deductions. There was an exemption but it tended to be so low that many middle-income taxpayers got caught up in its net. In addition, the relatively low exemption phased out as a taxpayers income rose, which basically could result in no exemption.

Even worse, it was difficult to predict whether you were subject to this tax. It normally applied if you have too much in long-term capital gains or too many itemized deductions. This caused many people to have to calculate their income tax under two different tax systems, which greatly increased the cost of tax preparation.

Sadly, Congress kept the AMT. However, they increased the exemption to a point that much fewer people will be subject to it.

The pre-Tax Cuts law exemptions were:

i. $86,200 for married filing joint taxpayers
ii. $55,400 for single individuals
iii. $43,100 for married filing separately

The new Tax Cuts law, beginning on January 1, 2018, and ends before January 1, 2026 increases the exemption amounts as follows:

i. for joint returns and surviving spouses, $109,400
ii. For single taxpayers, $70,300
iii. For married filing separately, $54,700

Also, the above exclusions are reduced by 25% over the following phased in amounts:

i. For joint returns and surviving spouses, $1 million
ii. For all other taxpayers, other than for estates and trusts, $500,000,
which reduces the phase-out substantially over what it
would have been under the old law.

The corporate AMT was completely eliminated.

Sandy’s elaboration: I like this change. The AMT hits people without their knowledge until they file their tax return. Frankly, eliminating the AMT altogether would have made filing a tax return simpler though.

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