Hello and thank you for your question.
The individual's marginal rate for regular income tax is 33%
(if the individual were married the marginal rate for regular income
tax would be 28%).
The individual's rate (it's a flat tax) for alternative minimum tax is
26% (once AGI exceeds 175,000 it's 28%)
It's the tax preference items in the tax return that subject a taxpayer to AMT
A 'comparable' municipal bond would be tax-free for both regular tax
and AMT. But private activity bonds do incur AMT. So that extra
percent of yield subjects the entire yield to AMT. So if the
comparable municipal yields 3% and the private activity bond yields
4%, and assuming a $10,000 bond, the comparison is 300 tax free or 400
AMT net 400 * .74 = 296.
So the regular muni bond is a better choice.
Universal life insurance. Premiums paid are non-deductible, but the
cash value of the investment fund will grow tax-free for both AMT and
regular tax purposes. So like the regular municipal bond future
growth will be tax free.
Capital growth mutual fund, i.e. capital gains distributions
For capital gains, the capital gains rates for the regular tax are used.
So the mutual fund will not provide tax shelter, apart from the
benefit of favorable capital gains rates, 15%
Luxury condo - - depreciation (I assume this is not a personal
residence, which could not be depreciated, so it must be property held
"Line 17, Post-1986 Depreciation: On this line, you enter the
depreciation difference for regular and AMT purposes. For AMT
purposes, you generally must depreciate (deduct) business assets over
a longer period of time than you can for regular tax purposes. This
creates a difference between regular tax depreciation and AMT
depreciation. This is an entry that does self-correct. By the time the
asset is completely written off, you have received the same deduction
for both regular and AMT purposes.
Suggestion: If you have an entry on this line, consider electing a
slower depreciation method for your business assets, which could
eliminate the AMT adjustment."
"Example 9 in the MSSP audit guide, a simple example for only one
asset, illustrates the information an auditor might request. Samantha
is an independent court reporter. On June 6, 1994, she purchases and
places into service a new word processor that costs $6,500. For
regular tax purposes, depreciation was computed on a 200% declining
balance, five-year property basis, as follows:
Year Basis Percentage Depreciation
1 $6,500 20% $1,300
2 6,500 32 2,080
3 6,500 19.2 1,248
4 6,500 11.52 749
5 6,500 11.52 749
6 6,500 5.76 374
For AMT purposes, depreciation was computed as follows:
Year Basis Percentage Depreciation
1 $6,500 15% $975
2 6,500 25.5 1,658
3 6,500 17.85 1,160
4 6,500 16.66 1,083
5 6,500 16.66 1,083
6 6,500 8.33 541
The difference between regular and AMT depreciation will require a
positive or negative adjustment each year as follows:
Year Regular AMT AMT Adjustment
1 $1,300 $ 975 $325
2 2,080 1,658 422
3 1,248 1,160 88
4 749 1,083 (334)
5 749 1,083 (334)
6 374 541 (167)"
"The alternative minimum tax treats both the excess of percentage
depletion over cost basis[Except for independent oil and gas
producers. See IRC §57(a(1)] and excess intangible drilling costs as
preference items.[See IRC §57(a)(2]"
Incentive Stock Options
"If you are granted a statutory stock option under an employee stock
purchase plan or an employee incentive stock option (ISO) plan, you
generally do not include any amount in your gross income as a result
of the grant or exercise of your option. However, you may be subject
to Alternative Minimum Tax in the year you exercise an ISO. For more
information, refer to the Instructions for Form 6251."
[page 2, re: line 13]
Search terms used:
2005 alternative minimum rate site:irs.gov
"alternative minimum" "Universal life"
"alternative minimum" "capital gains" site:irs.gov
"alternative minimum" "amt depreciation "
"alternative minimum" "depletion" oil
form 6251 instructions
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