This means, as you can see, that the lower your regular tax, the more likely you are to be hit by the AMT.
Over the years, regular tax rates have been cut, and brackets and many other features have been indexed for inflation. But such adjustments have not been applied to the AMT. Thus, the AMT's definition of "rich" steadily encompasses more taxpayers.
Congress did pass a temporary boost in the exemption amount -- it's now $58,000 for married couples filing jointly, $40,250 for singles and $29,000 for married filing separately -- and this fall lawmakers extended that through next year. But since the exemption phases out as income levels increase, it doesn't help higher-income families very much.
Because of differences between the regular tax and the AMT -- such as deductions that are allowed in the former and not in the latter -- strategies that lower regular tax can be counterproductive because they trigger AMT. That, of course, was the original point of the AMT, but it wasn't supposed to whack garden-variety taxpayers.
As a result, for taxpayers at or near the AMT, "year-end tax planning can be like playing two games of chess simultaneously," Asch said.
It's difficult to know for sure whether you will have to pay the AMT without actually doing both regular and AMT calculations. However, there are certain income and deduction items that many people have that can be triggers for the AMT.
Home mortgage interest. Did you refinance this year? Under the regular tax, interest on up to $100,000 of refinanced mortgage debt is deductible, even if you didn't put the money into the house. But it's not deductible for AMT unless it did go for home improvements. (Interest on mortgages up to $1 million remains deductible on both regular tax and AMT if you use the money to buy, build or improve your home.)
Standard deduction and personal exemptions. These reduce regular taxable income, but they must be added back when you figure your AMT income. This feature is one that can catch big families, since there's a personal exemption for each child, especially if they have other regular tax deductions that are not allowed for AMT.
State and local taxes. Almost everyone who itemizes deducts these, but they are not allowed for AMT. And this year, there's a new twist. Under the new tax law, taxpayers have the option of deducting either state and local income taxes or state and local sales taxes, at least when figuring their regular federal income tax. This was meant mainly as a favor for residents of states with no income tax, but it raises the possibility that such folks, after they happily claim their new deduction on their regular returns, will get a nasty AMT surprise.
(Asch noted that Congress forgot to include sales tax among the taxes that are disallowed for AMT, but it is expected to fix that. Technical corrections bills are pending in both houses.)