2018 taxes and AMT

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jdilla1107
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2018 taxes and AMT

Post by jdilla1107 » Sun Feb 11, 2018 9:33 am

I find the AMT changes in 2018 difficult to understand. If I am taking the standard deduction in 2018, does that mean the AMT will no longer apply to me?

The AMT always heavily limited my deductions in the past, so this feels like a significant win to me. Just making sure I am thinking about this correctly.
Last edited by jdilla1107 on Sun Feb 11, 2018 3:41 pm, edited 1 time in total.

kaneohe
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Re: 2018 taxes and AMT

Post by kaneohe » Sun Feb 11, 2018 9:54 am

As a general rule, I would say no. For example,for 2017, it is not true. You can use the std deduction and still have AMT. This just means the other method produces a higher tax. For 2018, the exemption is a bit higher and the phaseout income is a lot higher so it will be more difficult to have AMT, esp. for normal returns, but if you have very large capital gains/QDIV, I am pretty sure you can have AMT.

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CAsage
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Re: 2018 taxes and AMT

Post by CAsage » Sun Feb 11, 2018 11:02 am

AMT income levels are higher in 2018. There are several recent threads on 2018 tax calculators and estimators, search for one of them and run some samples. I found that ATM no longer applies to me.... O happy day!
Salvia Clevelandii "Winifred Gilman" my favorite. YMMV; not a professional advisor.

am
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Re: 2018 taxes and AMT

Post by am » Sun Feb 11, 2018 12:17 pm

I’ve been hit with amt for a decade. For 2018, I ran a bunch of income simulations and could not find one where amt got included. Looks like most of us are in the clear.

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FiveK
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Re: 2018 taxes and AMT

Post by FiveK » Sun Feb 11, 2018 3:56 pm

jdilla1107 wrote:
Sun Feb 11, 2018 9:33 am
If I am taking the standard deduction in 2018, does that mean the AMT will no longer apply to me?
Not necessarily, but as others have noted the AMT will apply to far fewer people in 2018 than in 2017.

The personal finance toolbox spreadsheet has a decent 2018 tax estimation, including whether the AMT will apply.

travellight
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Re: 2018 taxes and AMT

Post by travellight » Sun Feb 11, 2018 4:03 pm

thanks for starting this thread, Op. I am also very unclear on AMT changes with the new tax changes. If income is $500,000 and one takes deductions, will there be AMT? My taxes will go up 17k with the new tax reform changes due to losing state tax and limiting property tax deductions, but I paid 19k in AMT last year so I may end up net neutral if I am spared AMT.

kaneohe
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Re: 2018 taxes and AMT

Post by kaneohe » Sun Feb 11, 2018 5:41 pm

travellight wrote:
Sun Feb 11, 2018 4:03 pm
thanks for starting this thread, Op. I am also very unclear on AMT changes with the new tax changes. If income is $500,000 and one takes deductions, will there be AMT? My taxes will go up 17k with the new tax reform changes due to losing state tax and limiting property tax deductions, but I paid 19k in AMT last year so I may end up net neutral if I am spared AMT.
Note that if you paid AMT last yr, you were already losing your deductions for state and property taxes. You can try tax calculators like
Taxcaster and the the HR Block tax calculator. They will calculate the 2017 tax but on the last results page, there will be an estimate also for 2018 taxes. If the 2 calculators agree, you can have some hope that their answer is correct and compare w/ previous yr results to see 2018 effect.

Good Listener
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Re: 2018 taxes and AMT

Post by Good Listener » Sun Feb 11, 2018 6:13 pm

travellight wrote:
Sun Feb 11, 2018 4:03 pm
thanks for starting this thread, Op. I am also very unclear on AMT changes with the new tax changes. If income is $500,000 and one takes deductions, will there be AMT? My taxes will go up 17k with the new tax reform changes due to losing state tax and limiting property tax deductions, but I paid 19k in AMT last year so I may end up net neutral if I am spared AMT.
Good news. I was in same situation and we did not benefit at all from the deductions because the AMT wiped them away. There is great confusion in the high tax states (I keep hearing this in NJ where I live). My friend in N.Y. who pays nearly 50k a year in real estate taxes was hysterical about the loss of SALT deductions in the new tax law until I had him look at his last 5 years of returns and he saw he paid AMT. And then he became happy :sharebeer

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Artsdoctor
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Re: 2018 taxes and AMT

Post by Artsdoctor » Sun Feb 11, 2018 6:35 pm

kaneohe wrote:
Sun Feb 11, 2018 5:41 pm
travellight wrote:
Sun Feb 11, 2018 4:03 pm
thanks for starting this thread, Op. I am also very unclear on AMT changes with the new tax changes. If income is $500,000 and one takes deductions, will there be AMT? My taxes will go up 17k with the new tax reform changes due to losing state tax and limiting property tax deductions, but I paid 19k in AMT last year so I may end up net neutral if I am spared AMT.
Note that if you paid AMT last yr, you were already losing your deductions for state and property taxes. You can try tax calculators like
Taxcaster and the the HR Block tax calculator. They will calculate the 2017 tax but on the last results page, there will be an estimate also for 2018 taxes. If the 2 calculators agree, you can have some hope that their answer is correct and compare w/ previous yr results to see 2018 effect.
^ This. I've been in the AMT for 15-20 years so I lost those deductions years ago. I thought that my total tax would almost certainly go up but with the new calculators that exist (I first used TurboTax because that's where our data are), I'm getting a slight decrease in total tax for 2018, and that's taking the standard deduction of $24,000. Even if I had in charitable deductions that would allow me itemize, I can't really find myself in the AMT.

travellight
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Re: 2018 taxes and AMT

Post by travellight » Sun Feb 11, 2018 6:55 pm

Can anyone translate this for me? What is "phase-out" versus "exemption"? Does this mean that a single person can make up to $500,000 per year before invoking AMT? What happens if this person makes $510,000? Is $10,000 then taxed at 26% additionally?

I don't understand the "exemption" threshold, it is so low and the phaseout is so high.

How lawmakers defanged the AMT
Congress could simply have eliminated the individual AMT, as they did for the corporate version of the tax. Yet they chose a more subtle approach that will have the same net effect for most taxpayers without officially taking the AMT off the books.

Specifically, what Republicans did was to propose an increase in the exemptions that apply to the AMT. By raising the exemption amounts, lawmakers effectively widened the 0% rate under the AMT, making it that much harder for the alternative minimum tax to exceed the ordinary income tax liability for given taxpayers.

Filing Status

Old AMT Exemption

New AMT Exemption

Single

$54,300

$70,300

Joint

$84,500

$109,400

DATA SOURCE: IRS.

With the AMT starting at a rate of 26%, the increases reduce potential AMT liability by more than $4,400 for singles and almost $6,500 for joint filers.

Yet the bigger change came in the way that lawmakers changed how the exemption amount phases out. Under old law, you started losing $1 of your AMT exemption for every $4 in extra income above a certain phase-out amount. Those phase-outs used to occur at $120,700 for single filers and $160,900 for couples. That phase-out effectively increased the 26% and 28% tax rates under the AMT to a marginal rate of 32.5% and 35% for those in income levels that reflected the phase-out. With ordinary tax rates of 25% and 28% applying to much of that income for regular tax purposes, the difference of roughly seven percentage points caused AMT to add up dramatically.

Now, the phase-outs will start at $500,000 for singles and $1 million for joint filers. By that point, tax rates of 35% and 37% are already in effect, so even effective AMT rates of 32.5% and 35% won't actually result in any additional tax."

kaneohe
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Re: 2018 taxes and AMT

Post by kaneohe » Sun Feb 11, 2018 7:31 pm

travellight wrote:
Sun Feb 11, 2018 6:55 pm
Can anyone translate this for me? What is "phase-out" versus "exemption"? Does this mean that a single person can make up to $500,000 per year before invoking AMT? What happens if this person makes $510,000? Is $10,000 then taxed at 26% additionally?

I don't understand the "exemption" threshold, it is so low and the phaseout is so high.

.............................................
This probably will make no sense unless you actually go thru a calculation: google Form 6251 and instructions and go line by line thru an example. To calculate the AMT, you take the AMTI (AMT income) which resembles something like AGI. You subtract the exemption from that.....but the exemption is about 110K for MFJ and phases out with higher income.......but the phaseout level is 1M for MFJ so it stays at about 110K for MFJ until you get to phaseout when it slowly decreases. For many then, that means the exemption stays at 110K. You subtract the exemption from AMTI and then calculate the tax on that. Means nothing since it is non-zero until you compare w/ the regular tax but apparently the regular tax is often going to be higher so no AMT for many. If you have exclusively LTCG/QDIV income and it is very high,
you may have some AMT.

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FiveK
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Re: 2018 taxes and AMT

Post by FiveK » Sun Feb 11, 2018 7:33 pm

travellight wrote:
Sun Feb 11, 2018 6:55 pm
What is "phase-out" versus "exemption"?
The exemption is an amount one deducts from income to get taxable income. Think of the $4,050 personal exemption one uses for "normal" taxes.

The phase-out is when that exemption amount goes to $0. It doesn't go to $0 all at once, but decreases linearly over a certain income range. The "double whammy" of increasing income combined with decreasing exemption is what causes the higher marginal rates described in that article.

In other words, if you are taxed on C, where C = A - B, if B decreases while A increases, C gets bigger faster than if B stays the same.

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Electron
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Re: 2018 taxes and AMT

Post by Electron » Mon Feb 12, 2018 6:25 pm

Even though AMT excludes a number of deductions, all may not be lost. It is possible for the additional tax under AMT to be only $1.00. The reason for this is that the AMT Exemption varies over a wide range. As a result, the total income taxed under AMT may be higher, but the AMT Exemption may be higher than the combined Deductions and Exemptions entered on Form 1040. The net result is that one might only lose a portion of their deductions. The additional tax under AMT can of course be much higher.

In 2018, it is possible to trigger the AMT when taking the Standard Deduction if you have modest Ordinary Income combined with very significant Qualified Dividends and Capital Gains. The large QD/CG will add to the phaseout of the AMT Exemption leaving the Ordinary Income now subject to the AMT at a tax rate of 26% or 28%. The AMT can be triggered if your Ordinary Income would otherwise have been taxed at a lower rate. The tax on Qualified Dividends and Capital Gains under AMT is typically identical to the same tax calculation for Form 1040.
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travellight
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Re: 2018 taxes and AMT

Post by travellight » Tue Feb 13, 2018 3:04 am

Thanks for all the responses helping to clarify AMT. I wish it was simpler but at least I am starting to process the vocabulary.

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