Robert L Johnson CPA/PFS & Associates, PLLC

ALTERNATIVE MINIMUM TAX (AMT) EXEMPTION RESEARCH PROJECT

8 Feb 2006

www.johnsoncpa.com

I have put together several tax return examples calculating the AMT exemption at various income levels. The income in each version is either 100% ordinary income or 100% capital gain. Version 1 answers the question at what income level starts the first dollar of AMT if all AMTI is ordinary income and Version 2 if all AMTI is capital gain.

In Version 3-4 all AMTI is ordinary income and answers the question at what income level the exemption starts to phase out and completes phase out. Both of these versions have no AMT. The "no AMT' answer means that in both versions the regular tax exceeds AMT.

In Version 5, all AMTI is capital gain income at the complete phase out amount. Version 5 shows an AMT. This may seen odd considering capital gain rates are the same for regular tax and AMT. I will let you figure out what causes the AMT. Call me if this causes a sleepless night.

Version 5, along with the rest of this analysis and any other AMT study, supports the case that the AMT is one giant anomaly.

Each version assumes the following:

SOME THOUGHTS

• I have intentionally not included any AMT adjustments or preferences in this project to allow me to focus on income levels and the ordinary vs. capital gain character of AMTI.
• Phase out of the exemption does not always start the first dollar of AMT (See V. 3 and 4).
• If you have enough ordinary income, even when the AMT exemption is phased out, your regular tax will exceed AMT (See V. 4)
• AMT is killing me. It's bad enough to figure the regular tax, capital gain rates and trying to find my car keys. The misery index spikes further as more taxpayers sink into this mess.

2004 TAX RETURN VERSIONS

Version 1. At what amount of AMTI ordinary income is the first dollar of AMT paid? http://johnsoncpa.com/04I_FIRST%24OFAMTORDINARYINCOME_V1.PDF

Version 2. At what amount of AMTI capital gain is the first dollar of AMT paid? http://johnsoncpa.com/04I_FIRST%24OFAMTALLCAPITALGAINS_V2.PDF

Version 3. At what amount of AMTI ordinary income starts the exemption phase out? Note AMT is zero.

  http://johnsoncpa.com/04I_STARTEXEMPTIONPHASEOUTORDINC_V3.PDF      

Version 4. At what amount of AMTI ordinary income completes the exemption phase out? Note AMT is zero.

http://johnsoncpa.com/04I_AMTEXEMPTFULLPHASEOUTORDINC_V4.PDF

Version 5. At what amount of AMTI capital gain completes the exemption phase out? Note there is an AMT.

http://johnsoncpa.com/04I_AMTEXEMPTFULLPHASEOUTALLCAPGAIN_V5.PDF

FROM KEY ISSUE 31A: COMPUTING AMT: PPC 1040 DESKTOP (IRC SEC 55(d)

For 2004 and 2005, the exemption and AMTI phase out amounts are as follows:

Filing status	AMT Exemption	Phase out Begins	Completely Phased out
Married filing separately	$ 29,000	$ 75,000	$ 191,000
Single or head of household	40,250	112,500	273,500
Married filing jointly and surviving spouses	58,000	150,000	382,000

Comments are welcome.

Thanks for suffering through another AMT analysis.

Best Regards,

Bob

Robert L Johnson CPA/PFS

1-207-251-4688

North Conway NH

Wells, ME

8 Feb 2006