First, a quick reminder of what the Alternative Minimum Tax (AMT) is:
This is the tax that Congress imposed over four decades ago, when very rich people with clever advisors were able to pay $0 taxes. Unfortunately, it was never indexed for inflation and has, especially over the last decade, grabbed more and more taxpayers. This has led to several patches, including the law just passed by Congress.
Today, the tax has a 28% rate and removes many deductions, such state income taxes, most exemptions and then adds in other items, or “preferences”, like the spread on incentive stock options purchased but not yet sold.
For the new law, middle class taxpayers are rescued from the AMT – at least for 2010 and 2011.
That is, the compromise tax package from Congress boosts the exemption levels for the AMT to cover over 20 million middle-income taxpayers.
Someday, perhaps an inflation adjustment will be added…..