The Alternative Minimum Tax and Capital Gains
This entry was posted on 8/27/2007 12:52 PM and is filed under uncategorized.
The question is sometimes asked, why would capital gains trigger the Alternative Minimum Tax (AMT)? On form 6251 where the AMT is calculated, there is even a section thats purpose is to give people the lower capital gains tax rate on their gains. A lower capital gains rate wouldn't mean much to some filers if they still had pay the higher of the AMT rate or the capital gains rate. But as I see it, the problem is not with the form 6251, and it generally does pass through to the individual the lower rate.
Capital gains can and do phase out the income exemption amount so even though you might still be getting the 15% maximum capital gains rate on form 6251, you can lose your exemption, and the resulting tax rate might be 17% rather than 15%. So it's been my practice to mention the possibility of a higher effect gain rate because of the AMT.
What I've covered is only one aspect of the AMT. I often use my tax prep software to run a projection when clients ask me how much tax they are going to owe on a big capital gain, and I think this is a standard practice, however any software used should take into account relevant changes to the tax laws.
