AMT Tax: Affect you?

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The Alternative Minimum Tax (AMT): is all of this really necessary?

Dreaded Middle-Class Tax May Be Fixed


Ron SchererIf you think your taxes are bad this year, wait until next April 15.

Unless Congress acts relatively soon, millions more Americans will find that the tax refund they expected will disappear — swallowed up by the alternative minimum tax (AMT), a levy originally designed to make sure that millionaires pay up.

Indeed, as Americans root through receipt-filled shoeboxes to complete this year's 1040, fixing the AMT has become a priority in Congress. Lawmakers on both sides of the aisle agree something must be done, and they agree a fix will mean billions of dollars in lost revenue for U.S. coffers. But there's little agreement on how to pay for the repair: Many Democrats envision a tax increase for the wealthy, while many Republicans favor the elimination of some broad-based deductions, like local tax exemptions. The two sides don't even concur on how much revenue will be lost: Some put the figure at as little as $250 billion over the next decade, others as high as $1 trillion.

Given the lack of consensus, the first question lawmakers will be haggling over is whether to do a one-year "patch" of the tax to give middle-income homeowners a break or to try for a long-term overhaul.

Case Study

**With one child in college and another about to start, Joel Campbell, a middle-income sales director in Virginia's Loudoun County, has already tightened his belt. He says his property taxes are rising at double-digit rates annually — something he can no longer deduct from his income taxes now that he's subject to the AMT. Paying any additional tax to Uncle Sam will force some austerity measures.

"If something's not done, he'll end up paying $1,000 more in [federal] taxes next year," says Art Auerbach of Goodman and Co. in McLean, Va., Mr. Campbell's accountant.

Two Calculations Of The Tax Bite

This is how it works: Households with annual income above a certain threshold — set last year at $65,000 — must calculate their tax liability two ways. First, they calculate their tax liability using the regular tax code, which allows for deductions for mortgage interest, state and local taxes, and other items. Then, they must recalculate it under the AMT, which does not allow for most of those write-offs. The taxpayer shells out to the IRS whichever number is highest.

Entire: Dreaded Middle-Class Tax May Be Fixed, Congress Debates Future Of Alternative Minimum Tax, Which Affects 4 Million Middle-Income Households - CBS News