AMT Rates and Exemptions

The alternative minimum tax (AMT) method does provide each taxpayer with a flat dollar amount that is completely exempt from tax. The dollar amount of your exemption depends on your filing status. The exemption amounts for 2007 are:

• $66,250 if married filing jointly or as a surviving spouse
• $44,350 if single or a head of household 
• $33,125 if married filing separately 

In 2007, the available AMT exemption amounts are reduced by 25 percent of the amount by which an individual's taxable income for AMT purposes (called AMTI) exceeds: $150,000 for joint filers and surviving spouses; $112,500 for single taxpayers; and $75,000 for a married couple filing separate returns. The AMT exemption amounts are eliminated entirely if AMTI exceeds: $415,000 for joint filers; $289,900 for single individuals and heads of households; and $207,500 for married taxpayers filing separately.

Although the exemption amounts have increased in recent years, the AMT rates remain the same for 2001 and beyond. If your AMTI exceeds the exemption amount, you will be subject to a 26 percent AMT rate on the first $175,000 of AMTI ($87,500 for married taxpayers filing separately) that exceeds the exemption amount, and a 28 percent rate on any AMTI above this $175,000 amount.

Work Smart There's no doubt about it — the AMT can play havoc with your tax planning. If your AMT liability and your regular tax liability tend to be approximately equal from year to year, your best bet is to maintain this stability. If your deductions are not so evenly spaced and you tend to have great fluctuations in income from year to year, you may be able to shift some AMT-triggering items from an AMT year to a non-AMT year, so as to reduce your liability in a non-AMT year almost to the point at which you would become subject to the AMT. Your tax professional can tell you whether this might be possible in your individual situation.