Miscellaneous Itemized Deductions and the AMT

While most miscellaneous itemized deductions are welcomed by taxpayers who would like to hand over fewer dollars to Uncle Sam, they’re not always useful. Taxpayers who end up owing the alternative minimum tax (AMT) generally won’t get any federal tax benefit from the miscellaneous itemized deductions that are subject to the 2% floor.  There may be situations, however, where the tax benefit is reduced without being completely eliminated.

The AMT was established by Congress to prevent high-income taxpayers from escaping their responsibility to pay federal income tax by, among other tactics, taking very large amounts of deductions. Since its enactment in 1969, many taxpayers have had to run parallel calculations — one for the regular tax and one for the AMT — and pay whichever tax amount is higher.

Because of the way the AMT is calculated, it’s typically triggered not just by taxpayers’ income levels, but also by the types and levels of income and deductions. And, in calculating AMT income, taxpayers are required to add back the deduction allowed under regular tax purposes for the miscellaneous itemized deductions subject to the 2% floor.

Of course, even if a deduction isn’t allowed for federal income tax purposes, it still may be allowed on your state tax return. Most (although not all) states don’t have an AMT calculation.

Join Our Newsletter

Sign up to receive exclusive newsletters with the latest information affecting you and your organization.

Posted in