If our Congress had not taken action, millions more individuals would have been hammered with the dreaded alternative minimum tax (AMT). So the politicians put yet another one-year patch in place. As a result, if you did not owe the AMT for last year, you probably won’t owe it for this year either. The patch has two parts.
First Part: Higher AMT Exemptions
The first part of the patch grants expanded AMT exemption amounts for 2008. You subtract these exemptions from your income in arriving at the amount that will be taxed under the AMT rules. Bigger exemptions mean less chance that you have to pay the AMT with your 2008 Form 1040. The expanded exemption amounts for 2008 are as follows.
$69,950 for married joint-filing couples and surviving spouses (up from $66,250 for 2007)
Unfortunately, these exemptions are phased-out for higher-income taxpayers. For married joint-filers, phase-out starts when your income under the AMT rules exceeds $150,000. For unmarried individuals, the phase-out threshold is $112,500. For married individuals who file separately, the threshold is $75,000. The new law doesn’t change the exemption phase-out rule.
Second Part: Personal Tax Credits Reduce Your AMT Bill
The second part of the patch allows you to use certain personal tax credits to offset your 2008 AMT bill as well as your regular tax bill. Once again, this reduces the odds of being hit with the AMT for 2008 (you were allowed the same privilege for 2007). This treatment applies to the personal credits listed below.
Child tax credit (up to $1,000 per child
Some of these credits are not as common, which is why you may not recognize them. The new law doesn’t change that. The first four credits are pretty common, but they are all reduced or eliminated if your income exceeds certain thresholds. The new law doesn’t change that either.
Refundable AMT Credit Rules Liberalized (Big Time)
In a recent article, I explained how AMT victims who generated AMT credits a few years ago (typically from exercising lucrative incentive stock options could potentially start collecting their unused credits by filing Form 8801 with their 2007 returns. However, as I also explained, it could take up to five years to collect your old AMT credits, or even longer if your income was too high--because the refundable AMT credit privilege was phased-out for higher-income folks.
Happily enough, the new law makes enormous improvements in the refundable AMT credit rules. For 2008 and beyond, the phase-out rule for higher-income taxpayers is completely eliminated. In addition, the new law allows you to collect 50% of any unused AMT credits generated in pre-2005 years by including Form 8801 with your 2008 Form 1040. You can collect the remaining 50% by doing the same drill with your 2009 return. Any unused AMT credits generated in 2005-08 can also be recovered over two years, but you have to wait until the credits are over three years old before you can start cashing them in.
Additional Relief for Prior-Year AMT Victims
There’s more. Another provision in the new law lets you walk away from any unpaid AMT bills that were outstanding on 10/3/08 if they were caused by exercising incentive stock options before 2008. You can also walk away from any related interest and penalty charges assessed by the IRS. If you already paid some interest and penalty charges, you can recover them over two years under the new-and-improved refundable AMT credit rules.
For up-to-date tax information visit TurboTax Online. Their support section is loaded with informative and accurate articles you can use to help lower your taxes.
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