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Over on the Estate Planning board, a poster has asked about a charitable remainder trust (CRT) to reduce taxes from the proposed sale of a major asset, presumably farm land. Someone pointed out that capital gains rates are low (but may be raised soon). Someone else noted that large capital gains might trigger the AMT.

I did calculations with Tax Cut showing that at least in my case, the AMT would be triggered with an additional $60K of capital gains.

http://boards.fool.com/Message.asp?mid=26549226

But even then the tax was quite small and in no case did the tax rate on the gain exceed 18.3%.

This wandered into a discussion of if you think capital gains will be raised to 28% next year, is it worth cashing in those long term paper gains and paying 15% this year. That part seemed to be disputed.

Congress seems determined to do something about the AMT. But then who is at risk of getting caught. A few more trials with Tax Cut gave no AMT with an additional $1MM in wages, interest, dividends, tax free interest, treasury bond interest, dividends, or tax exempt dividends.

Tax Cut information says AMT can show up with deductions for real estate taxes, state & local income taxes, or dependents. In my case, the AMT showed up with $24K in property tax deductions, or $21K in state income tax, or 6 additional dependents. For all of these minimum numbers the AMT was less than $500. Not a very big deal.

Looks like the AMT discussion is mostly for fat cats. It is rarely a problem for individuals.
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Looks like the AMT discussion is mostly for fat cats. It is rarely a problem for individuals.

Actually, it's the other way around. The AMT was designed to catch fat cats with esoteric tax preference items. There aren't that many, especially after the Tax Reform Act of 1986. Why they didn't eliminate AMT at the same time we'll never know.

Really fat cats, let's say Wall St. workers with the fabulous bonuses, don't get hurt by AMT since their regular tax is high enough that AMT isn't a factor. The only reason AMT gets press is that since the exclusion amount wasn't indexed, ordinary people making say, $125,000 with a lot of kids or living in a high-tax state are losing their personal exemptions and state tax deductions to AMT.

Phil
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Most years I let VickiSpouse deal with the taxes so what I'm reporting on here is what he kvetches about. AMT is a parallel tax system, so it is necessary to calculate taxes twice and pay the higher of the two.

1. The AMT that bothered him the most was the year that we had to pay extra because California is a high-state-tax state. Losing the state tax deduction really frosted him.

2. AMT requires paying tax on gains not yet received if you exercise stock options. Then it requires keeping track of two different basis until you finally sell the stock. It was funny to look at the Turbo Tax summary sheet where it said that we had paid 127% of our income in taxes.

Mostly, we try to avoid AMT if we can because we have a lot of AMT carry-over.

Vickifool
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In Missouri, that $24K in property taxes would require $1.76MM in real estate market value; in NJ, abt $1.2MM.

In Missouri, that $21K in state income taxes would require $350K annual income; in NJ, $424K (at the married rate). (Both states tax capital gains at normal income tax rates.)

So looks like revision is most important to the number of dependents.

And yes it hits high value real estate markets harder.
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I don't mind paying taxes (it's a consequence of earning money) but what I hate about the AMT is that it makes it difficult to estimate your tax liability and have the proper amount withheld. 2007 was particularly bad since lawmakers changed the AMT exemption with only a few weeks left in the year.

I think it needs to be scrapped and, if needed, build the deduction phase outs into the standard tax system.

-murray
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>>But even then the tax was quite small and in no case did the tax rate on the gain exceed 18.3%.<<<

That means the AMT increased your tax bill by over 20%.

buzman
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