Are there any deductions I can create for AMT?

July 28, 1999

Subject:  How to reduce the AMT bill?
From:  Sarra
Date:  Sun, 27 Jun 1999

I know I will be subjected to AMT next year. I was wondering if there is anything I can do to create more deductions for AMT so that I minimize the AMT bill. For example, I understand that the mortgage interest payments on a primary house is deductible under AMT. So I bought a house(I was going to buy a house sooner or later anyway, but this I think will help reduce my AMT bill). I wanted to know, if there are any such deductions I can create.

ksa

Answer

Date:  Wed, 28 Jul 1999

Hello Sarra,

Sorry it took so long for me to write back to you.

A home acquisition mortgage is one of a very few deductions that are allowed for the alternative minimum tax.

Charitable contributions is another one, if you are so inclined.

Medical deductions are usually eliminated because they are subject to a 10% of adjusted gross income floor.

Investment interest (interest incurred to buy investments that generate taxable investment income) is deductible for alternative minimum tax up to the amount of your investment income.

If you have a business that generates a loss, that loss may be deductible for AMT. There are many tax sections that could eliminate the deduction, so you would do well to consult with a tax advisor on this one.

You should be aware that deductions for state income taxes and real estate taxes are not allowed for the AMT.

Good luck!

Mike Gray

Question 2

Subject:  How to reduce the AMT bill?
From:  Sarra
Date:  Sat, 31 Jul 1999

Thanks for the reply. Regarding the mortgage being tax deductible under both AMT and normal tax calculations, I had another question. I was planning to finance my home as 80/10/10 where 80% is the mortgage amount, 10% is the downpayment I make and another 10% is some sort of a short term loan that will go into my down payment so that I don't have to pay the PMI (Personal Mortgage Insurance). Now is the interest on this extra 10% loan deductibe under normal tax laws, AMT or both?

Thanks

Shravan

Answer 2

Date:  Sat, 14 Aug 1999

Hello Shravan,

About the deductibility of the interest for short-term financing, the interest could be deductible for both regular tax and AMT.

In order to qualify, the loan must be secured by your principal residence, or a second residence. (Probably second trust deed.) The loan must relate to the purchase or improvement of your principal residence, or a second residence.

The total of all financing may not exceed $1 million.

The financing may not exceed the purchase price of the residence.

Good luck!
Mike Gray

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