23.1 Computing Alternative Minimum Tax on Form 6251

After you determine your regular income tax liability, you use Form 6251 to compute AMT liability, if any. The checklist below gives an indication as to when you may have to use Form 6251. The checklist items are discussed at 23.2–23.5.

If you check any of the items on the list, you should complete Form 6251 to determine if you are liable for AMT. These items are AMT adjustments and preferences and generally are added back to regular taxable income to calculate alternative minimum taxable income (AMTI). The items that most commonly get added back to income when calculating AMTI are state and local taxes and miscellaneous itemized deductions.

Items subject to AMT:		Check:
1.	Personal exemptions
2.	Standard deduction
3.	Itemized deductions for taxes, miscellaneous expenses, and medical expenses
4.	Interest on home equity debt used for nonresidential purposes
5.	Accelerated depreciation in excess of straight line
6.	Income from the exercise of incentive stock options
7.	Tax-exempt interest from private activity bonds
8.	Intangible drilling costs
9.	Depletion
10.	Circulation expenses
11.	Mining exploration and development costs
12.	Research and experimental costs
13.	Pollution control facility amortization
14.	Tax-shelter farm income or loss
15.	Passive income or loss
16.	Certain installment sale income
17.	Income from long-term contracts computed under percentage-of-income method
18.	Net operating loss deduction
19.	Foreign tax credit
20.	Investment expenses
21.	Gain on small business stock qualifying for exclusion

AMT exemption amounts for 2012 unsettled when this book went to press.

Because exemptions are not indexed for inflation, Congress has been forced to periodically enact “patches” to keep the exemptions at a high enough level so that millions of middle-class taxpayers do not become subject to the AMT. Without the patches, the AMT exemptions would fall back to what they were before 2001. At the end of 2010, legislation was passed that included AMT exemption patches for 2010 and 2011.

A patch for 2012 had not yet been provided when this book went to press, but it is extremely likely that Congress will enact the exemption patch following the 2012 elections. See the e-Supplement at jklasser.com for an update.

Phaseout.

The exemptions are subject to a phaseout rule: 25% of the exemption amount is phased out for each $1 of AMTI exceeding $150,000 for joint filers and qualifying widow(er)s, $112,500 for single taxpayers and heads of household, and $75,000 for married persons filing separately. A married person filing separately whose exemption is completely phased out must increase his or her AMTI by an additional amount; see the Form 6251 instructions.

AMT calculation.

After reducing AMTI by the allowable exemption, a 26% AMT rate generally applies to the first $175,000 of AMT income ($87,500 if married filing separately), and a 28% rate applies to any balance of the AMT income. However, if you had net capital gains that qualify for reduced capital gains rates (5.3), you apply the same capital gains rate for AMT purposes as for regular income tax purposes.

The resulting tax, less any AMT foreign tax credit, is the tentative AMT, which applies only to the extent it exceeds your regular income tax. For this purpose, regular income tax is the tax on Line 44 of Form 1040, with no reduction for tax credits other than the foreign tax credit, minus any special averaging tax on a lump-sum distribution (available only if you were born before January 2, 1936 (7.4)). If income averaging was used on Schedule J for farm or fishing income (22.6), the regular tax must be refigured for purposes of determining AMT. The excess of tentative AMT over the regular tax (modified as required by the Form 6251 instructions), if any, is the AMT liability that you must report as an additional tax on Line 45 of Form 1040.

Follow the line-by-line instructions to Form 6251 to figure your AMT liability, if any.