[quote=flu][quote=TemekuT]Let’s all pay $3 interest so we can save $1 in taxes. That’s after adjusting for the benefit on the first portion of taxable income of $5,800 single and $11,600 married, available to all via the standard deduction. Then, be sure to adjust for AMT as Schedule A deductions are limited and personal and dependency exemptions are phased out as AGI increases. Okay, ready now? Let’s all rush out and acquire lots of “tax deductions” so we can all save money on our taxes.[/quote]
Correct me if I’m wrong but…
*The mortgage interest deduction for a primary resident does NOT normally get AMT limited.
Under even normal tax calculations, mortgage interest deduction can get phased out, but it’s gradual, unless your AGI is way way up there.
*Property Taxes, State Income Taxes, Personal Property Taxes are EXCLUDED from AMT calculations
So… If you have a high AGI and have a lots of deductions and am still hitting AMT, it’s because your state come/property/personal prop taxes aren’t doing didly squat in the current year. That’s also why you might want to check whether you want to pay your property taxes this year or next….[/quote]
I swore I would stop posting tax code here and I don’t work with tax prep anymore, but, since my last tax refresher course was 3 years ago, and now that I’ve had to do a quick review of AMT so I could defend my post, the following are considered for AMT purposes:
1. Personal and dependency exemptions are not allowed as deductions for AMT.
2. Property tax deductions are not allowed for AMT. Futhermore, state and personal property taxes are not allowed.
3. Only the interest on mortgages related to the home is allowed. The portion related to the allowed $100,000 deductible for a home equity line not related to home improvements is excluded.
4. There are other Schedule A items that are subject to AMT.
I won’t bother to mention the less common Schedules B & D items that are subject to AMT, except to note that those items are common to high earning, high net worth individuals.
Furthermore, consider that many taxpayers take deductions for non-allowable items…Mello Roos and other bond items, and deductions for non-allowable mortgage interest in excess of basis.
One basic guide I used to give taxpayers that were subject to AMT was never prepay property tax or the 4th state quarterly estimate, as the benefit would be wiped out from the AMT.
Good news regarding the phase-out of itemized deductions. This provision has been repealed for 2011. That means it’s still part of tax code so who knows what will be decided in 2012.
In 2010 35% of taxpayers earning between $100,000 and $200,000 were subject to AMT. I don’t consider that income level to be high in most areas of California.
Now, the reason for my initial snarky post – based on my CPA background and years of real estate sales – most people significantly overestimate the tax advantages of home ownership. The less informed do not understand the benefit of the standard deduction amount. The more informed do not understand the AMT nor the deduction phaseout. Many deduct non-allowable portions of propery tax and mortgage interest. The tax code is a train wreck and subject to the whims of Congress from year to year. Pay interest if you will, but don’t overestimate the tax savings when making your calculations. And plan on the mortage interest deduction being whacked in the near future. After all, somehow the deficit has to be reduced, or at least held stable.
