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Individual Tax

Alternative Minimum Tax


 The 2007 AMT Patch 

January 22, 2008

David V. Kalet, CPA
kaletdv@comcast.net

Highlights of HR-3996, Tax Increase Prevention Act of 2007

The President has signed HR-3996, the Tax Increase Prevention Act of 2007 (TIPRA 2007), which provide a one-year patch to the alternative minimum tax.  A summary of the bill’s main provisions is provided below.

Increased AMT exemptions

Effective for 2007 only

As expected, Congress again passed a one-year AMT patch by raising AMT exemptions for 2007.  The new exemption amounts are:

 

 

Filing Status

2006

2007

Married Filing Jointly and QW

$62,550

$66,250

Single and Head of Household

$42,500

$44,350

Married Filing Separately

$31,275

$33,125

Had TIPRA 2007 or other patch legislation not passed, the 2007 exemption amounts would have been $45,000, $33,750 and $22,500 for the three filing statuses respectively.

Phase-out rules for the AMT exemption did not change.  The phase-out range is based upon alternative minimum taxable income (AMTI).  The phase-out ranges for 2007 are based upon the following AMTI amounts:

 

 

 

2007 Phase-out Range

Filing Status

Rate

Begins

Ends

Married Filing Jointly and QW

25%

$150,000

$415,000

Single and Head of Household

25%

$112,500

$289,000

Married Filing Separately

25%

$75,000

$207,000

Thus, a couple filing jointly will have a full AMT exemption of $66,250 for alternative minimum taxable income (AMTI) less than $150,000 and a reduction of $0.25 for every dollar over $150,000.  The exemption is fully phased out when the couple has AMTI of $415,000.

Example: The married couple’s AMTI is $200,000, which exceeds by $50,000 the beginning of the phase-out range of $150,000.  The couple’s revised AMT exemption is $66,250 – [($200,000 - $150,000) x 25%] or $53,750.

Personal Nonrefundable Credits Offset both AMT and Regular Tax

Effective for 2007

Without the AMT patch, personal nonrefundable credits (other than the child credit, the adoption credit, and the saver’s credit) could not exceed the excess of regular tax liability over the tentative minimum tax (after adding back in any alternative minimum foreign tax credit) and would have been disallowed as a result.

Under TIPRA 2007, the combined total of the following credits may offset both regular tax and AMT:

  • Child tax credit
  • Saver’s credit
  • Child and dependent care credit
  • Hope and Lifetime Learning credits
  • Mortgage credit
  • Adoption credit
  • Residential energy efficient property credit
  • Credit for the elderly and permanently and totally disabled
  • Non-business energy property credit for energy-efficient improvements to a principal residence
  • D.C. first-time homebuyer credit

Example: In 2007, a MFJ couple have a regular tax before credits of $9,000 and a tentative minimum tax of $7,800.  They also have $1,500 in education credits.  Under the new law, they can claim the full $1,500 in education credits.  Without the patch, even if they owed no AMT, they would have been able to claim only $1,200 of their education credits ($9,000 - $7,800).

The following are Frequently Asked Questions regarding the AMT Patch

Which returns are AMT related?

  • Form 8863, Education Credits (Hope & Lifetime Learning)
  • Form 5695, Residential Energy Credits
  • Form 8396, Mortgage Interest Credit
  • Form 8859, District of Columbia First-Time Homebuyers Credit
  • Form 1040A, Schedule 2, Child & Dependent Care Expenses, for Form 1040A filers

What are a taxpayers filing options with AMT delayed forms?

  • Option 1 – e-file return starting February 11 (when the IRS is ready to accept all returns).  This is IRS preferred option.
  • Option 2 – submit paper file any time prior to February 11.  IRS will hold and not begin processing prior to February 11.  Expect return will be subject to typical IRS paper filing processing times of 6-8 weeks.
  • Option 3 – e-file the return without the credits now and file an amended return (Form 1040x) with the credits at a later date.   Expect amended return will be subject to typical IRS paper filing processing times of 6-8 weeks. 

If a tax preparer removes the credits and files the return, will it be judged incomplete?  Is this a conflict with IRS Circular 230 which prohibits filing incomplete or inaccurate tax returns?

Many tax return items, such as earned income, are required.  However, a taxpayer is not obligated to claim a credit.  Therefore, returns filed without credits are not incomplete or inaccurate and do not conflict with Circular 230. 

Is it possible that the IRS may change the February 11 date?

Yes, it is possible that the February 11 date could change.  The IRS has communicated that February 11 is the latest possible date they expect for beginning to accept returns that are impacted by one of the AMT related credits.  

 

 

 

 

 


         
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