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TAX YEAR
2019

Alternative Minimum Tax

Alternative Minimum Tax (AMT) than his tax computed under regular rules, John must pay
the difference in additional tax. John must report additional
The alternative minimum tax was originally enacted to AMT tax in the amount of $400.
ensure that high-income taxpayers pay at least a mini-
mum amount of tax if they benefit from certain deduc- AMT Triggers
tions and other tax preference items.
Items that commonly trigger AMT include deductions for
The AMT tax computation is a parallel system to the state and local taxes, and exercise of incentive stock op-
regular tax system with its own definitions of income tions. Other AMT adjustments and preferences include:
and expenses, rules for income recognition and timing, • Taxes from Schedule A (Form 1040).
and exemptions and tax rates. Although every taxpayer • Tax refunds reported on Form 1040.
is subject to AMT rules, the additional tax is paid only if • Certain investment interest expense.
the tax computation under AMT rules is higher than the • Certain depletion expense.
tax computed under regular rules. • Net operating losses.
Even though the AMT was originally targeted toward • Interest from specified private activity bonds.
high-income taxpayers, factors, including inflation and • A portion of gain from section 1202 small business
treatment of certain tax credits, can sometimes push stock.
lower-income taxpayers into an AMT situation. • Exercise of incentive stock options.
• Certain gains from dispositions of property.
How AMT Works • Certain depreciation adjustments.
Certain items called adjustments and preferences are • Passive activity gains and losses.
added to or subtracted from federal adjusted gross in- • AMT loss limitations.
come reduced by any itemized deductions. An AMT ex- • Certain circulation costs.
emption amount is allowed, depending on the taxpay- • Long-term contracts.
er’s filing status. The AMT tax rate of 26% to 28% is ap- • Certain mining costs.
plied to the resulting alternative minimum taxable in- • Certain research and experimental costs.
come. If the resulting tax is greater than regular tax, the • Pre-1987 installment sale income.
difference is added to regular tax on Form 1040. • Intangible drilling cost preferences.
Example #1: When computed under regular rules, John’s in- AMT Exemption Amounts
come tax is $4,700. When computed under AMT rules, the tax Filing Status 2019 2018
amount is $3,900. Since his tax computed under AMT rules is Single or Head of Household $71,700 $70,300
less than his tax computed under regular rules, John will not Married Filing Jointly $111,700 $109,400
pay any additional amount for AMT.
Married Filing Separately $55,850 $54,700
Example #2: Assume the same facts as Example #1, ex-
cept when computed under AMT rules, John’s tax amount is
$5,100. Since his tax computed under AMT rules is higher