These deductions have always been completely disallowed under the AMT rules. Personal and dependent exemption deductions If that change becomes law, this risk factor would come back into play big time. Key point: Proposed legislation would allow much larger SALT deductions for itemizers. So, for 2018-2025, this AMT risk factor is reduced, because allowable itemized deductions for state and local taxes are so limited. For 2018-2025, the TCJA limits your regular tax itemized deduction for state and local income and property taxes combined to $10,000, or $5,000 if you use married filing separate status. But you’ve never been able to deduct them under the AMT rules. If you itemize, you could fully deduct SALT under the pre-TCJA regular tax rules. Itemized deductions for state and local taxes (SALT) That’s helpful if you have lots of income in 2021, but it doesn’t necessarily make you AMT-exempt.Īlso, the fact that the TCJA lowered five out of the seven regular federal income tax rates while leaving AMT rates at 26% and 28% increases the odds of owing the AMT. Lots of folks will be reporting big capital gains on their yet-to-be-filed 2021 tax returns, and that increases their exposure to the AMT.Īs I just explained, the TCJA increased both the exemption amounts and the income levels where they begin to be phased out. When you have high income, from whatever source, it can cause your AMT exemption to be partially or completely phased out, which increases the odds that you’ll owe the AMT. Substantial income from capital gains or whatever But here are the most common danger signs under the current version of the AMT that applies for 2018-2025. Various interacting factors make it difficult to pinpoint exactly who will be hit by the AMT and who will escape. Thankfully, the TCJA dramatically increased the phase-out thresholds to levels where most folks are unaffected.įor 2021, the phase-out threshold is $1,047,200 for married joint-filers and $523,600 for other filing categories.įor 2022, the phase-out thresholds are $1,079,800 and $539,900, respectively. Specifically, your exemption is reduced by 25% of the excess of your AMT income over the applicable phase-out threshold. Your exemption is phased out when your AMT income surpasses the applicable threshold, but the TCJA greatly increased those thresholds for 2018-2025.Īt high levels of AMT income, your AMT exemption is phased out (reduced or eliminated). The TCJA significantly increased the exemption amounts for 2018-2025.įor 2021, the exemption amounts are $114,600 for married joint-filers, $73,600 for unmarried individuals, and $57,300 for married individuals who file separate returns.įor 2022, the exemption amounts are $118,100, $75,900, and $59,050, respectively. Under the AMT rules, you are allowed an inflation-adjusted AMT exemption (effectively a deduction), which is subtracted in calculating your AMT income. If that happens, I don’t think the higher rates would take effect until 2022.
Key point: Proposed legislation would increase some regular tax rates for some higher-income folks.
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