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AMT and Capital Gains

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karen
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« on: November 20, 2010, 10:54:47 am »

I am confused about the AMT treatment of long term capital gains.  Do the LT gains retain their favorable tax treatment when I am subject to the AMT, or are they then subject to the same tax rate as other income?  Are they included in my income when determining my marginal tax rate in either the regular or AMT tax?  In other words, just for an example, if I had $250,000 in long term capital gains and only $50,000 in other income, would that $50,000 be taxed at the marginal rate of 33%, or at a lower rate as if I did not have the capital gains?  Would that long term capital gain throw me into the AMT and thereby lose its favorable tax rate?
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« on: November 20, 2010, 10:54:47 am »

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steven
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« Reply #1 on: November 24, 2010, 10:11:51 pm »

I think you are confusing two separate steps. Using your example of 250K long term capital gains and 50K ordinary income, for example wages, it would go like this - first, you calculate the tax on the long term capital gains.

250K would be reported on 1040 line 13. It comes there from line 16 of Schedule D. If you look at line 20 of Schedule, you can see that it instructs you to fill out Qualified Dividends and Capital Gain Tax Worksheet on page 39 of the 1040 Instructions. Line 14 of the Qualified Dividends and Capital Gain Tax Worksheet applies the 15% long-term capital gains tax rate to your 250K long-term capital gains. And, line 15 of the Qualified Dividends and Capital Gain Tax Worksheet applies the regular tax brackets to your 50K wages, 50K falls into the 25% tax bracket for single.

Then, you go to the next step to calculate your AMT, this second step is in 1040 on line 45. If you go to form 6251, you can calculate that your alternative minimum taxable income is in this very simple example (which is not considering deductions, etc.) your adjusted gross income of 300K. Then, you can see on line 32 of 6251 that you get hit by the 26%/28% AMT rate. From the lines 37 to 55 of form 6251 you can see that a portion of the AMT is calculated using the 15% tax rate applied to the long term capital gains attributable to your alternative minimum taxable income and also using the AMT tax rate applicable to the remaining portion of your alternative minimum taxable income.

So, to make the long story short, your 250K would be taxed at the 15% tax rate and your 50K would be taxed at the 25% tax rate (bracket; I am assuming single). Your AMT which considers the whole 300K is calculated using the 15%, 26% and 28% tax rates proportionally.

See here for more info on AMT.

Hope this helps.
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oddy1113
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« Reply #2 on: August 13, 2013, 11:48:13 am »

The AMT exemption amount and AMT rate are set by the law. For capital gains and certain dividends the rates in effect for the regular tax are used. Amount of income that is subject to both the AMT and regular tax at the same rate. Most often a substantial long-term capital gain causes the problem.
« Last Edit: August 28, 2013, 01:25:22 pm by oddy1113 » Logged
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