Tax Sanity Check- AMT seems too high after large bitcoin capital gains

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Tax Sanity Check- AMT seems too high after large bitcoin capital gains

Post by anonymousTaxpayer22 » Sun Apr 15, 2018 9:30 pm

Hey there bogleheads. I created an anonymous/throwaway account because talking about income numbers this high on any other account seemed to reveal too much personal information about me.

I'm filing my taxes for year 2017 using TaxAct. I have a very large amount of long-term capital gains related to bitcoin sales. I am married filing jointly, and my income information is as follows:

Wages, salaries, and tips $67203
Taxable interest income $72
Taxable ordinary dividends $1405
Capital gains or losses $448298
Rental income $3905

I am getting these numbers for tax owed:

Tax $74571 (in addition to $8812 already withheld)
Alternative minimum tax $10682
Net investment income tax $10294

Is it true that this tax situation would lead to high AMT taxes? Various articles around the web indicate that AMT is not applied to capital gains (ref. ... t-amt.aspx), but that capital gains can cause AMT to apply to other income. I'm very confused even trying to read about the AMT. The federal worksheets and instructions are poorly worded and taxact is not much better.

The simple sanity check calculation I tried was to apply the highest AMT rate of 28% to all of my non-capital-gains income, and subtracting the extent to which it would be higher than this income taxed with normal tax brackets:
AMT tax:

normal income tax, based on same income sum less $12700 deductions: $9248.50

Difference: $11075

So the amount of AMT seems about right. Is anybody able to give me a bit of confidence for my "sanity check"?

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Re: Tax Sanity Check- AMT seems too high after large bitcoin capital gains

Post by FiveK » Sun Apr 15, 2018 11:35 pm

Pretty much the same numbers the 2017 version of the personal finance toolbox spreadsheet gets, assuming MFJ with both under age 65 (based on the 12,700 std. deduction). See results below, and/or download to verify.

Code: Select all

     Post     Spreadsheet
Tax  83,383   83,343
AMT  10,682   10,337
NIIT 10,294   10,180

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Re: Tax Sanity Check- AMT seems too high after large bitcoin capital gains

Post by ofckrupke » Sun Apr 15, 2018 11:46 pm

Michael Kitces has a fairly comprehensive article on AMT at his site, although his focus is not really on capital gain taxation.

Short term capital gains get taxed like ordinary income and in the phaseout interval of the AMT Exemption each dollar of income reduces the exemption by 0.25 (this is how one gets 35% marginal taxation in a 28% AMT rate bracket in the AMT Exemption phaseout).
Long term CG gets preferentially taxed at 15% below the threshold of the 20% rate, but contributes to the phasing out of the exemption as described above. This is how one's LTCG gets 21.5 and then 22% marginal taxation in the phaseout interval.

With 84500 of AMT exemption to exhaust, the phaseout interval extends over a 338k income interval. Since the effect of the phaseout adds 7% over most of that interval, 10k of AMT actually sounds smaller than I'd have guessed. I suppose that with your low ordinary income the TMT is less than the regular tax until most of the way through the phaseout, so you're only actually into nonzero AMT for the last ~150k of it, hence ~10.5k of AMT.

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