The Tax Cuts and Jobs Act was supposed to be the end of the alternative minimum tax (AMT), which has been confounding taxpayers in one form or another since 1969. The AMT is still with us, albeit in a much reduced form. Congress provided temporary relief from the AMT, which (unless extended or made permanent) expires in 2025.
The immediate result is expected to be far fewer taxpayers paying the AMT. In fact, the Internal Revenue Service (IRS) estimates that AMT filings for the 2018 tax year will drop from approximately 5 million to about 200,000.
How will this happen? The new tax law raised the AMT exemption amounts (used when calculating alternative minimum taxable income). The new exemptions are $109,400 for joint return filers (up from $84,500); $70,300 for singles and heads of households (up from $54,300); and $54,700 for married couples filing separately (up from $42,250). In addition, the phase outs for the exemption amounts start at a much higher level: over $1 million for married couples (up from $160,900) and $500,000 for all others (up from $120,700). This means many more taxpayers in the “upper income” range will now be able to take advantage of the exemptions.
If you are among those who have paid AMT in the past, but will either escape the additional tax starting this year or see its impact reduced, you may wish to rethink your tax strategy to incorporate what could result in a significant change in the amount of taxes owed.
Guidance on the Tax Cuts and Jobs Act is still coming out throughout the year as the IRS works through the details of the new law. It is important that you consult with a qualified tax advisor when making plans in the new tax landscape. If you have any questions, please contact the Gray, Gray & Gray Tax Department at (781) 407-0300.