question.jpgIn Federal Income Tax

What is the alternative minimum tax (AMT) exemption?

Once you have calculated your alternative minimum taxable income, you are entitled to take the AMT exemption, one lump-sum amount which reduces the income amount used to determine your potential AMT liability. There is a phaseout which applies to these exemptions if your alternative minimum taxable income is over a certain amount, which can lower the amount of your exemption and possible take away the exemption entirely. For the 2006 tax year, the AMT exemptions are as follows:

1. If you are married and filing a separate return, your AMT exemption is $31,275.

2. If you are single or filing as head of household, your AMT exemption is $42,500.

3. If you are married filing jointly or a qualified widow/widower, your AMT exemption is $62,550.

It is worth noting that the AMT exemptions were set to drop significantly from the 2005 tax year to the 2006 tax year. While the new exemption amounts discussed above were put into place for 2006, they were only established for 2006, meaning the exemption amounts will drop significantly for the 2007 tax year unless Congress again increases them. This would mean that: (i) your potential AMT liability could increase by a substantial amount for the 2007 tax year; and (ii) more people will be subject to AMT liability, including many people who are not subject to the AMT for the 2006 tax year.