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Alternative Minimum Tax—Tax Cuts & Jobs Act

· AMT,Tax Reform 2017

Tax reform made changes to the tax law that significantly impact the alternative minimum tax AMT. The changes could mean more money in your pocket and less going to the government.

If you own a C corporation, then you are the big AMT winner: Tax reform completely eliminated AMT for C corporations. C corporations are now subject only to a flat 21 percent income tax rate.

For individual taxpayers, the news is pretty good: tax reform increased the AMT exemption amounts (and they will continue to increase for inflation).

  • The joint return and qualifying widower exemption went from $84,500 to $109,400.
  • The single and head of household exemption went from $54,300 to $70,300.
  • The married filing separately exemption went from $42,250 to $54,700.

Your AMT exemptions phase out if your AMTI is over a certain threshold. Good news—tax reform substantially increased these thresholds:

  • The phase-out on a joint return or a qualifying widower return used to start at $160,900 and now starts at $1,000,000.
  • The phase-out for single and head of household returns used to start at $120,700 and now starts at $500,000.
  • The phase-out on a married filing separately return used to start at $80,450 and now starts at $500,000.

These changes mean that it is less likely you will pay AMT in tax year 2018 and going forward.

Tax reform also took aim at the most common deductions that triggered AMT, by:

  • limiting the state and local tax deduction on Schedule A to $10,000 starting in 2018,
  • suspending 2 percent miscellaneous itemized deductions starting in 2018, and
  • suspending personal exemption deductions starting in 2018.

You probably weren’t happy with the limitation on the state and local tax deduction. Because you live in a high-tax state, you stand to lose tens of thousands of dollars in tax deductions.

However, if you pay a lot in state and local taxes, you probably didn’t get the full benefit of this deduction, because AMT clawed back its tax benefits. If you paid AMT in 2017, then you still might pay less tax under tax reform even without these deductions.

Planning for AMT is something to be proactive about. If you have any questions on how the AMT may affect you, your team here at Luster Tax Consulting would love to take a look at your situation and see how we can plan accordingly.

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