Tax reform made changes to the tax law that significantly impact the alternative minimum tax (AMT). The changes could mean more money in your pocket and less going to the government.
If you own a C corporation, then you are the big AMT winner: Tax reform completely eliminated AMT for C corporations. C corporations are now subject only to a flat 21 percent income tax rate.
If you are an individual taxpayer, you also have good news. Tax reform increased the AMT exemption amounts (and they will continue to increase for inflation) as follows:
• The joint return and qualifying widower exemption went from $84,500 to $109,400.
• The single and head of household exemption went from $54,300 to $70,300.
• The married filing separately exemption went from $42,250 to $54,700.
Your AMT exemptions phase out if your alternative minimum taxable income is over a certain threshold. Good news—tax reform substantially increased these thresholds:
• The phase-out on a joint return or a qualifying widower return used to start at $160,900 and now starts at $1,000,000.
• The phase-out for single and head of household returns used to start at $120,700 and now starts at $500,000.
• The phase-out on a married filing separately return used to start at $80,450 and now starts at $500,000.
These changes mean that it is less likely you will pay AMT in tax year 2018 and going forward.
Tax reform also took aim at the most common deductions that triggered AMT, by
• limiting the state and local tax deduction on Schedule A to $10,000 starting in 2018,
• suspending 2 percent miscellaneous itemized deductions starting in 2018, and
• suspending personal exemption deductions starting in 2018.
You probably are not happy with the limitation on the state and local tax deductions if you live in a high-tax state. You likely stand to lose tens of thousands of dollars in tax deductions.
But if you were paying a lot in state and local taxes, you probably didn’t get the full benefit of this deduction, because AMT clawed back its tax benefits. The end result could mean that when this washes out, you might pay less tax under tax reform without your state and local tax deductions.