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Author: BruceCM Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 81338  
Subject: Re: AMT and Tax-free bonds Date: 5/25/2011 10:12 PM
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Alternative tax generally comes about due to high deductions relative to income. In calculating your alternative tax, instead of several of the deductions you'd otherwise get for such expenses as property and state taxes, personal exemptions or, if applicable for you, the standard deduction, you get a standard AMT deduction and then a flat tax rate of 26% or 28%.

For most taxpayers, the only income 'preference' item, (income not subject to regular income tax but income for calculating alternative tax), is interest received on revenue, or income, or private activity bonds (these are different names for the same thing). The bonds you've mentioned, if issued by your state, are general obligation bonds, which are backed by the taxing authority of the goverment that issued them, so they will not be income for calculating your alternative minimum tax.

However, capital gains on these bonds will be includable as income for regular and alternative tax

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