Easing of Individual Alternative Minimum Tax
The new tax law does not eliminate the alternative minimum tax (AMT) for individuals, but there are changes that will reduce the number of taxpayers who are subject to it.
First, the AMT exemption has been increased for tax years 2018-2025. The AMT exemption is similar to the standard deduction under the regular tax rules: taxpayers are allowed to reduce their income by a set amount. The new law has increased the exemption, which will help prevent lower-income taxpayers from becoming subject to AMT.
Another change revolves around the phase-out of the AMT exemption. Previously, taxpayers started losing the AMT exemption when their income went above a certain threshold (amount varies based upon filing status). Under the new law, the threshold for when taxpayers start to lose the exemption has been increased significantly. For a married filing joint couple, they previously started losing the exemption when their income hit about $160,000. This threshold has been increased to $1 million, so more taxpayers will be able to utilize their exemption against much higher income. This change, in conjunction with the increased exemption itself, will prevent a lot of taxpayers from paying AMT.
In addition, the changes to bonus depreciation, the elimination of 2% miscellaneous itemized deductions, and the limitation on state and local taxes (see separate articles for more information) will reduce the differences between regular tax and AMT. Without large adjustments related to these items, taxpayers will be less likely to pay AMT than in the past.
If you were subject to AMT previously, you may not be anymore. You may be able to reduce your withholding or decrease your estimated taxes due to these changes. Call your accountant at Copeland Buhl for more information on the changes to AMT.
Jeremy Thompson, CPA
Copeland Buhl & Company PLLP