The alternative minimum tax (AMT) on individuals was created in 1969 – by the Tax Reform Act of 1969 (P.L. 91-172; 12/30/69). This problematic tax is about to reach its 50th anniversary at the end of the year. With the Tax Cuts and Jobs Act of 2017, the corporate AMT was repealed, it is time to repeal the individual AMT and deal with the reasons why it was enacted in a more equitable and logical manner.
Here is the description from the Joint Committee on Taxation’s Summary of H.R. 13270, The Tax Reform Act of 1969 (8/18/69): “Limit on Tax Preferences.—In those cases where tax preferences are not fully subject to tax, provision is made for a minimum tax on individuals having tax preferences in excess of their taxable in- come. The additional tax in this case is determined by adding to the regular income subject to tax, one-half of the tax preferences but only to the extent they exceed the regular income.”
The JCT report lists reasons for and against the minimum tax, as follows.
Most of us have heard of the term Alternative Minimum Tax, Alt Min Tax, or AMT. But what is it? Alternative Minimum Tax is a tax system that parallels the standard tax systems and adds an additional level of taxation to baseline income tax for certain individuals, corporations, estates and trust. Traditional tax is adjusted for certain items and computed differently for AMT. Some of these items are depreciation, medical expenses, state taxes, certain mortgage interest, real estate and personal property taxes. AMT was first introduced in 1969 when Congressed determined that a portion of the population with high incomes, roughly one-hundred-fifty-five million taxpayers, were able to utilize tax deductions and other tax breaks to the point where they were paying almost nothing in taxes. The Reagan Administration created what we currently know as Alternative Minimum Tax that included more widespread exemptions and deductions while eliminating some of the investment deductions that only applied to the very wealthy.
Although Congress has been promising to repeal the alternative minimum tax (AMT), they failed to do that when they passed tax reform in 2017. Instead, they lessened the effects of the AMT by increasing AMT exemptions (an amount of income exempt from AMT taxation) and raising the income thresholds for when the exemptions are phased out. These two steps and some other changes covered below lessen your chances of being hit by the AMT, but it is still there, so it is wise to be aware of how the AMT is determined and the things that might trigger it.
There are two ways to determine your tax: the regular way, which most everyone is familiar with, and the alternative method. Your tax will be the higher of the two.