Tom. You have brought up an interesting point and some tax
programs actually allow or automatically override the
selection of whether to itemize or not (because State taxes
might also be affected) This is best illustrated by an
example.

Suppose you have $50,000 of regular mortage interest as your
only itemized deduction, about $500,000 of AGI and a $12,000
standard deductionl The 80% reduction limit on Schedule A
applies, providing you with a net itemized deduction of
$10,000,

For ordinary income tax you would take the standard
deduction, reducing your taxable income by $2,000 versus
itemizing. For AMTax, however, you should take the
adjusted $10,000 allowable itemized interest deduction
because the AMT does not allow the Standard Deduction PLUS
you get credited on 6251 line 6 for the $40,000 of interest
you couldn't deduct from AGI. This move increased regular
taxable income by $2,000 but reduced AMTI by $50,000

So the net effect of itmizing will increase line 43 (tax)
by $500 (if you're in the 25% bracket) , but reduce line 44
AMTax by $13,000 to $14,000. Note that without the 3% or 90%
Schedule A limitation BOTH taxeable regular income and AMTI
would be reduced by $50,000 and you would hardly notice the
differen on line 44 (which is the difference between the two
taxes.)

The above effects are the same whether the net itemized
deductions are larger or smaller than the Standard
Deduction, but are adversely affected by any itemized
deduction not allowable on the 6251 You just wouldn't be
tempted to look at the results if your net itemized
deductions were more than the Standard Deduction.. Iin
that case you would automatically itemize.

There may be an opposite effect if you have itemized
deductions not allowable under the AMT. In that case not
itemizing them reduces both regular tax and AMT and would
only be advantageous if you are in the 33% or 35% bracket
(maybe some if in the 18% bracket).a

So the above are just the normal interactive dynamics of the
reguar tax and AMTax. It is just interesting, as you
pointed out, that those interactions might dictate itemizing
for your regular tax even though it doesn't reduce your
regular tax by as much as if you took the Standard
Deduction.

ed

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"Ram Samudrala" <ram[at]sp1.compbio.washington.edu> wrote:

- quote -

I've actually come across a situation in which a
(relatively) high income taxpayer did better by electing to
use itemized deductions where the 3% phaseout reduced the
deduction below the standard deduction; thus reducing the
adjustment on the 6251 (state taxes were not an issue).

--
Tom Healy, CPA
Boulder, CO
Web: http://www.tomhealycpa.com

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Ram Samudrala wrote:

- quote -

Sometimes it is better to pay AMT that just raise the
ordinary tax liability to the point where you don't pay
AMT. In certain instances, it is possible to use
AMT paid in a year for tax credit in future years.
See http://www.fairmark.com/amt/amt101.htm.

Anoop

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"Jonathan Kamens" <jik[at]kamens.brookline.ma.us> wrote:

- quote -

Removing those deductions will not reduce the AMT, it will
increase the regular tax so that AMT does not kick in.

--
David M. Woods, EA, ChFC, CLU
Woods Financial Services
Norwood, MA 02062
www.woods-financial.com

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Seth Breidbart <sethb[at]panix.com> wrote:

- quote -

I haven't seen anyone mention that filing MFS instead of MFJ
might, in some cases, reduce AMT and total taxes paid by the
couple.

In one case I had this year -- Ohio returns often get looked
at carefully to see if MFS makes sense because Ohio has just
a single tax table, steeply increasing, regardless of filing
status -- by filing MFS and getting the dependent moved from
the taxpayer with higher AGI to the taxapyer with lower AGI,
the total tax was less because AMT was eliminated. And
needless to say Ohio tax was also greatly lowered. Of
course Ohio is not a community property state so community
property rules do not apply.

__
Art Kamlet ArtKamlet [at] AOL.com Columbus OH K2PZH

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"Ram Samudrala" <ram[at]sp1.compbio.washington.edu> wrote:

- quote -

I guess you missed the part where you pay the higher of
regular tax or AMT.

--
David M. Woods, EA, ChFC, CLU
Woods Financial Services
Norwood, MA 02062
www.woods-financial.com

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"Ram Samudrala" <ram[at]sp1.compbio.washington.edu> wrote:

- quote -

Your question shows a common misunderstanding of the AMT.
You can elect not to deduct the home equity interest. That
will not change your AMT result, but it will INCREASE your
regular income tax. So, you may not pay AMT because your
regular income tax has increased, but you will be paying
more tax overall. I don't think that's the intention.

Simply put, the AMT does not INCREASE your tax, it just does
not allow you to decrease your tax beyond a certain point.
IN your situation, avoiding AMT cannot possibly help you; it
can only hurt you.

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Since AMT only kicks in when higher than your regular tax,
I'm skeptical that removing a deduction would decrease your
overall tax. If you remove a deduction, your AMT may
decrease but your regular tax would increase. The only time
it would work is if your regular tax rate was lower than the
AMT rate which is not the case with most taxpayers subject
to AMT

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"Ram Samudrala" <ram[at]sp1.compbio.washington.edu> wrote:

- quote -

Yes, but it's extremely rare for there to be a need to avoid
the AMT. If you do it right, you will avoid the AMT, but
your actual tax liability will be the same.

Gary
--
The above address is fake. If you want to contact me
directly, please send an e-mail to: gary at gdgoodman dot com.

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"Ram Samudrala" <ram[at]sp1.compbio.washington.edu> wrote
- quote -

Sure, if you want to. Remember though, that the software
(and I'm just guessing you use software) probably computes
AMT in most every situation (behind the scenes) and takes
the higher of the two.

So if you want to reduce your deductions until you have
regular tax equal to AMT, go for it.

--
Paul A. Thomas, CPA
Athens, Georgia
taxman at negia.net

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Ram Samudrala <ram[at]sp1.compbio.washington.edu> wrote:

- quote -

Yes, but it won't lower your overall tax bill.

Example: Non-AMT Tax: $50,000 AMT: $5,000 (in addition). If
you fail to declare some deductions that don't apply to AMT,
Non-AMT Tax: $56,000, AMT: $0. You've eliminated the AMT,
but you aren't better off.

Seth

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Yes, you are allowed to omit legitimate deductions from your
tax return; there's nothing obligating you to take all the
deductions to which you are entitled. So if certain
deductions cause your AMT to be higher than your regular
tax, and removing those deductions reduces your AMT to less
than your regular tax, and that's a desirable goal for you,
then you're certainly allowed to do it.

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Ram Samudrala <ram[at]sp1.compbio.washington.edu> writes:

- quote -

In some cases, yes. But in those cases getting rid
of the AMT will NOT reduce your total tax.

<rant
The problem is the way the AMT is reported on 1040.
People see a "Tax" line, an "AMT" line, and a "Total Tax"
line and naively assume that by making the "AMT" line go
to zero they have saved money.

To quote _Family Feud_, "BZZZZZZZT!"

What actually happens is:
* You compute your tax under the regular tax rules. Call that RT.
* You compute your tax under the AMT rules. Call that TMT
(for "tentative minimum tax").
* If RT > TMT, you're done and nothing further goes on 1040.
* If TMT > RT, you compute TMT - RT and put that on the AMT
line of 1040

Since the AMT line of 1040 is TMT - RT, there are two ways
to make the AMT line go away:
(1) Reduct TMT until it is less than or equal to RT.
(2) Increase RT until it is greater than or equal to TMT.
(3) A combination of (1) and (2).

Your proposal (not taking deductions disallowed under the
AMT) is (2). As you should be able to see by now, (2) will
not decrease your total tax and if you leave off enough
deductions, it will actually INCREASE your total tax.

The IRS should make available an alternate series of forms:
1040-AMT, Sched A-AMT, etc. for all the forms where the AMT
rules are different than the regular tax rules. This would
(a) make it very clear what is going on, and (b) make it
much easier for people in AMT to deal with it, rather than
reconciling all the differences between the regular tax and
AMT on a single, ill-documented form (6251).

</rant
--
Rich Carreiro rlcarr[at]animato.arlington.ma.us

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Not taking a deduction so that your ordinary income tax is
greater than your AMT tax is costing you more taxes than if
you let ( or make) the regular income tax decrease to less
than the AMT tax. The IRS is making you think you are
paying an incremental "AMT" tax on line 44 when this is
really only the difference between the constant AMT tax and
the regular tax you have managed to decrease to less than
the AMT tax by all those deductionss. Your total tax will
never be less than the AMT tax as computed on form 6251.

You should feel lucky you were able to get your regular tax
down so all you had to pay was the AMT tax. If there is
nothing on line 44 you are paying a penalty in that your
regular tax is greater than your AMT tax.

ed

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Is it possible to redo one's taxes so that it doesn't
trigger the AMT in specific cases? For example, suppose the
itemised deduction of home equity loan interest (not used
for home buying, building, or improvement), or deduction of
property taxes, triggers the AMT. Is it then possible to not
take the deduction at all? As far as I understand it,
there's no law that says you MUST take all the deductions
you're entitled to, right? So in these situations can't one
just redo their taxes and avoid the AMT?

--Ram

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