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[quote=Anonymous][quote=Anonymous][quote=Anonymous][quote=Anonymous]The AMT is a "parallel" tax system. It was created in the 1960s after testimony that 155 really high-income people avoided tax by zeroing out their taxable income with deductions and exemptions. It was modified in the 1980s. But until this year, it was not indexed for inflation on a permanent basis, so as incomes rose, more middle-class people got sucked into it while the really wealthy basically escaped it.

The AMT works by denying many common deductions and exemptions (including state and local taxes and personal exemptions) and replacing them with a set tax-free exemption. It then applies a 26% or 28% tax rate on income earned in excess of the exemption. If you might be subject to the AMT, you have to calculate your taxes under both the normal system and under the AMT rules and pay whichever is higher. Basically, even though the top rate for individuals is higher than the highest AMT rate, you might end up paying AMT because more of your income will be subject to tax.

The exemption amount for 2012 is $50,600 for singles and $78,750 for married couples. 
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Thanks, OP here.  This is helpful.  I am no where near earning enough money for AMT to kick in but I'm preparing my father in law's taxes and his income is higher.  I'm using H&R block/Tax Cut.  Do you happen to know if the software will have already run this both ways for me?[/quote]

Yes, it should.

These are some major risk factors for AMT: 1) Having lots of children (i.e, more than two); 2) Living in a high-tax state like California or New York; 3) Owning a home with high property taxes; 4) Having a lot of deductible medical expenses; 5) Exercising incentive stock options from an employer 6) carrying forward any net operating losses; 7) having tax-exempt interest from private activity bonds; 8) paying a lot of taxes to a foreign government 9) some investment interest expenses 10) some form of accelerated depreciation (which you'd have only from a pass-through business).[/quote]

Thanks.  he doesn't have any of those factors, though his property tax bill is a lot higher than ours, for example (Florida).  It's just that he took a very large chunk out of his retirement account last year.  It looks as if AMT will kick in and he wont' get the benefit of any deduction for most of the property taxes or his sales tax deduction.  (I if remove those two items from TaxCut the total tax bill stays the same - without there is no AMT and with AMT is about $5k).[/quote]

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