[quote=FormerSanDiegan][quote=flu][quote=FormerSanDiegan]The #1 legal tax break is write-off of interest of your first mortgage. Of course, getting that requires you to leverage real estate which has been a losing proposition the last few years.
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Unfortunately, this itemized deduction I believe also starts getting reduced above certain income levels…
Also, there is a point in which you end up paying AMT….and some itemized deductions won’t count toward AMT (property tax and income tax deductions aren’t part of AMT calculation, for instance).
Ironically, experimenting with my tax software, I think mortgage interest payments are still deductions when computing AMT…..
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Yes, mortgage interest is still deductible under AMT. Property tax and state income tax are not deductible under AMT, but remember there is a large exemption under AMT, so the extent that this impacts someone will depend on their income and total deductions.
Yes, deduction phase outs do start occurring at higher income levels, but these tend to have a smaller impact than AMT for most normal people (making less than 300K)
There seems to be a sweet spot for optimal use of mortgage deduction while falling just below AMT and not impacted by phase outs. Punch in a joint income of 225-250K or so, assume mortgage of 700K-850K into your tax software and see what happens.
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I don’t know what exactly it is, but I get hit with AMT every year…and as you indicated it’s a hit much more so than the mortgage deduction phase out (….well,at least until Obama changes the rules to the mortgage interest deduction that 🙁 )
…Part of the problem probably is from the fact that my property tax bill is a non trivial amount, and as an itemized deduction, makes a nice deduction that doesn’t count in the AMT calculations.
*edit*
I think my effective federal tax rate ends up being around 15.8% each year (state is about 7% i think- not done with this year’s taxes and most likely will file an extension).
* Back to the original poster’s question. The other thing was (at least under the Bush plan), a good portion of my income was from dividend income, which under Bush was 15%….Not exactly tax “exempt”, but better than paying oh, 20..25%+ on W2 income or waiting for long term cap gains rates….
That will change for some people under Obama, so those days are probably numbered…And that involved (heresy) buying sin stocks that paid good dividends (Phillip Morris, Altria, ChevronTexaco, etc)…Dividends from MO, PM,CVX are 7.7%, 5.8%, 3.8%.
