UPDATED WITH CONFERENCE BILL RELEASED DEC 15
Old bills: House & Senate
How to estimate AMT savings
The AMT is an entirely separate way of calculating taxes that impacts less than 5% of tax filers.
High-income tax filers who may be hit by the AMT must calculate their "normal" tax returns and also use a completely different formula to calculate their AMT return. Then they pay the higher of the two calculations.
Because the tax bill only partially gets rid of AMT, calculating the savings for AMT filers becomes complex. Here's how to get a good estimate IF your income is below $1,000,000 (married) or $500,000 (other.) Some of the steps below are counter-intuitive, but will give you a good estimate if you follow them closely.
Step 1: Look up the amount of AMT you paid last year (line 45 of your 1040 form)
Step 2: Take the calculator result on the previous page and add it to your number in step 1. For example, if the calculator says you save $1,000, add $1,000 to step 1. If it says you lose $1,000, subtract $1,000 from step 1.
NOTE: IF you get a negative number from step 2, you will no longer pay AMT. You lose from tax reform; your total loss from reform is the negative number you calculated in step 2, not the number shown on the previous page. Stop here.
Step 3: If you got a positive number in step 2, and are married filing jointly, subtract $6,032 from the result in step 2.
For any other marriage filing status, subtract $3,874 from the positive result in step 2.
If the resulting number is negative: You will no longer pay AMT. Your AMT savings are the full amount you entered in step 1. Add those savings to your result on the previous page.
If the resulting number is still positive: This is how much you will still owe in AMT. Your AMT savings are: step 1 minus step 3. You should add your AMT savings to the result on the previous screen. NOTE: THIS IS A LOWER-BOUND ESTIMATE OF SAVINGS. You may save more in AMT, but that gets more complicated. Hope to add by this weekend.
Why doesn't the calculator do this automatically?
The AMT impacts fewer than 5% of people and I have not had time. I hope to automate the above steps soon, but for now you can do it manually if you want.
Where do the above numbers come from?
The exemption for married AMT was raised from $86,200 to $109,400. The exemption will now phase out at $1,000,000. So if you make under $1,000,000, your exemption goes up by (109,400-86,200) = $23,200.
The rate you pay on the AMT is either 26 or 28%. Let's be conservative and assume you're paying 26%. Your extra exemption is then worth: $23,200 * .26 = $6,032.
The exemption for individual AMT was raised from $55,400 to $70,300. The exemption will now phase out at $1,000,000. So if you make under $1,000,000, your exemption goes up by (70,300-55,400) = $14,900. Your extra exemption is then worth: $14,900 * .26 = $3,874.
Note that the math above provides a LOWER-BOUND to your savings, because it assumes your AMT rate is 26% when really it'll be somewhere between 26% and 28%. But it'll be close and, if anything, you'll be saving more than this estimate.
Note: if your income is above $1,000,000 (married) or $500,000 (other), then more equations come into play and the estimate above may not be close.
More questions or comments? Maxim Lott can be reached on Twitter here.
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