How alternative minimum tax works

The following example illustrates the AMT for 1984. The example assumes a married taxpayer filing jointly and ignores the zero-bracket amount and personal exemptions. Since the AMT in the example ($35,440) exceeds the regular tax ($1, 581), the AMT applies. This example illustrates the severe impact that the tax might have on taxpayers in certain circumstances. Regular tax computation Salary income $125,000 Net long-term capital gain $150,000 Less: capital gain exclusion (60%) (90,000)m 60,000 Dividends and interest (net of $200 dividend exclusion and $2,000 All-Savers interest exclusion) $40,000 Other gross incoem 10,000 Tax preference deductions (80,000) Other deductions(20,000m (50,000)m Adjusted gross income $135,000 Itemized deductions: Contributions, mortgage $ (90,000) interest, etc. (30,000)m (120,000)m Taxable income $15,000 Regular tax $1,581

Alternative minimum tax (AMT) computation Adjusted gross inomce (from above) $135,000 Tax preference items: Capital-gains exclusion $90,000 Tax preference deductions Dividend ($2000) and All-Savers interest ($2,000) exclusions 2,200m 172,2000 AMT itemized deductions: Contributions, mortgage interest, etc. (90,000) AMT exemption (40,000)m Base for AMT $177,200m AMT (20%) $35,440m