- How to Reduce Alternative Minimum Tax
- What Criteria Determine Whether I Have to Pay the Alternative Minimum Tax?
- Income Cap on Standard Deductions
- Will Your Tax Return Be Delayed if You Itemize?
- Can Taking the Standard Deduction Help to Avoid the Alternative Minimum Tax?
- Deductions Affected by the Alternative Minimum Tax
The alternative minimum tax is a separate tax system that was set up in the 1960s to ensure that the wealthiest Americans pay a fair share of taxes and do not over-use deductions to reduce their income. Over time, the level of income that will subject you to the AMT has not been increased to allow for inflation, so the AMT now affects more taxpayers. If you are subject to the AMT, many of your tax deductions that you currently enjoy will no longer be allowed.
Under the alternative minimum tax, mortgage interest on your first mortgage is still fully deductible as it is under the regular tax system. You can deduct from your income the interest that you pay on a mortgage with up to $1 million in principal value to purchase or build a home.
Home Equity Loan for Improvements
Home equity loan interest or second-mortgage loan interest is deductible under the AMT, if the loan was taken out to improve your home. This includes loans for additional living space, as well as for other substantial improvements or repairs.
Home Equity Loan - Other Purposes
If you borrowed money against your home to purchase a car or to send one of your kids to college, the interest on this loan is not deductible under the AMT. You will need to add any deductions you take for this interest under the standard tax system back in to your taxable income for AMT calculation.
Other Homeowner Effects
Other expenses common to homeowners will not be deductible under the AMT. State and local tax deductions disappear under the AMT. This means your previously deductible property tax bill will now be added back to your taxable income.