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Quesiton is this: Is it normal to run into AMT because of high AGI? I don't mind paying the tax, but I thought AMT was there so as to disallow only certain types of deductions for people with high AGI. I don't claim any deductions other than state-taxes I have already paid.

While I am not in the tax business, this will be my third year in a row I've been hit by the AMT.

My understanding is that you can hit the AMT anytime you have a high AGI. This can be caused by something like a high income (in general or due to employee stock options), short term capital gains, or even long term capital gains.

The long term capital gains surprised me (made me hit it the first year), and while it still ended up that my LTCG were still taxed at just 15%, I lost out on some deductions and thus paid an additional $4k or so in fed taxes.

But, due to the ramping nature of the tax brackets, there is a point that someone could be above the AMT. AMT is basically a flat tax at 26 or 28% (depending), with fewer deductions than the normal tax code.

If you put both of those on a graph, you'd have a straight line (AMT), and a curved line (normal). The curved line would start above AMT (AMT has a large initial deduction), dip below the straight line (lets say at $130k, though it depends on a lot of things and so is not a fixed number), and then eventually hits the AMT line again before surpassing it.

With the AMT you pay whichever tax is higher, so basically you pay the normal tax at lower incomes, normal plus extra to bring you to the AMT level in the middle, and back to normal taxes if in the higher incomes.

But in general, anything that raises your AGI (above whatever limit based on your other deductions) can make you get hit by the AMT surcharge.

Hopefully that makes sense, and clears it up a bit.

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