Why is this Topic Important to Wealth Managers? This blogticle provides discussion and analysis on the alternative minimum tax and how it’s calculated in 2011. For wealth managers who are closely integrated with client planning, knowledge of the AMT and how it affects clients is integral to overall wealth management.
Present law imposes an alternative minimum tax (‘‘AMT’’) on individuals. The AMT is the amount by which the tentative minimum tax exceeds the regular income tax. An individual’s tentative minimum tax is the sum of (1) 26 percent of so much of the taxable excess as does not exceed $175,000 ($87,500 in the case of a married individual filing a separate return) and (2) 28 percent of the remaining taxable excess.
The taxable excess is so much of the alternative minimum taxable income (‘‘AMTI’’) as exceeds the exemption amount. The maximum tax rates on net capital gain and dividends used in computing the regular tax are used in computing the tentative minimum tax. AMTI is the individual’s taxable income adjusted to account for specified preferences and adjustments.
The AMT exemption amount for taxable years beginning in 2011 is (1) $74,450, in the case of married individuals filing a joint return and surviving spouses; (2) $48,450 in the case of other unmarried individuals; and (3) $37,225 in the case of married individuals filing separate returns.
Generally, present law provides for certain nonrefundable personal tax credits (i.e., the dependent care credit, the credit for the elderly and disabled, the child credit, the credit for interest on certain home mortgages, the Hope Scholarship and Lifetime Learning credits, the credit for savers, the credit for certain nonbusiness energy property, the credit for residential energy efficient property, the credit for certain plug-in electric vehicles, the credit for alternative motor vehicles, the credit for new qualified plug-in electric drive motor vehicles, and the D.C. first-time homebuyer credit).
Under Sec. 202 of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010  for taxable years including 2011, the nonrefundable personal credits are allowed to the extent of the full amount of the individual’s regular tax and alternative minimum tax.
This extension of the use of nonrefundable credits replaces what would have been a much different tax treatment. In other words, the nonrefundable personal credits (other than the child credit, the credit for savers, the credit for residential energy efficient property, the credit for certain plug-in electric drive motor vehicles, the credit for alternative motor vehicles, and credit for new qualified plug-in electric drive motor vehicles) would have been allowed only to the extent that the individual’s regular income tax liability exceeds the individual’s tentative minimum tax, determined without regard to the minimum tax foreign tax credit. The remaining nonrefundable personal credits would have been allowed to the full extent of the individual’s regular tax and alternative minimum tax.
For more information on the AMT see generally AMAFX Tax Facts How is the Alternative Minimum Tax calculated?
Next week’s blogticles will present interesting planning concepts for wealth managers.
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 IRC Sec. 55(a).
 IRC Sec. 55(b).
 IRC Sec. 55(b)(1)(A)(i)(II).
 See IRC Sec. 55(b)(2).
 IRC Sec. 55(d).
 Public Law 111–312.
 See IRC 26(a).