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I have 85k earned income and 310,000 in long term capital gains for 2000. I was planning to pay state capital gains in 2000 and write off on my fed taxes. However, when I punch this all into turbo tax - I make out better (4k or so) by using the standard deduction of 7200 and not even claiming my 2 this wierd or what???? Why is this? Is it caused by some strange AMT rules or am I just all screwed up?

It sounds like the AMT is rearing its ugly head in your case. The problem you have is that the AMT tax rate is 26% or 28% for higher incomes, like yours. Since that is higher than the 20% regular tax rate on long-term capital gains, the AMT starts coming into play when you have big gains - again like yours.

State income taxes are not deductible for AMT purposes, so you may indeed be better off waiting to pay the state taxes in 2001 when (I assume) you won't have that big capital gain. Unfortunately, all those state taxes could push you into AMT territory again in 2001.

My best suggestion for you is to do a two-year projection of your income and taxes. Be sure to consider AMT in both years. Then you can decide which year is better for you to pay the state taxes.

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